Remuneration to partner
This query is : Resolved
12 July 2009
The rate of distribution of salary has been increased in the budget for the current year. However there is one problem in the same that amendment in the partnership deed will be required as per section 40(b) of the Income Tax Act but as per Income Tax Act the alteration in the deed will be prospective. So how the enhanced remuneration will be available for the entire year?
13 July 2009
In case if it is specified in the partnership deed that remuneration , salary are paid to partners as per sec 40(b) without giving gifures that above said amendment does not affect otherwise your are require to change deed. However upto date of new deed remuneration is calculate as per curent deed
14 July 2009
As per the provisions of income tax act any amendment in the partnership deed will be prospective and therefore will apply from the date of alteration and not 01.04.2009? So what should be done?
21 July 2025
Hey! Your question about remuneration to partners and the impact of amendments in the partnership deed under Section 40(b) of the Income Tax Act is a classic issue. Let me explain it clearly:
Context:
The Income Tax Act, Section 40(b) governs the allowability of remuneration (salary/profit share) paid to partners as a deductible expense for the firm.
The budget increased the allowable rate of partner remuneration for the current year.
However, the partnership deed needs to be amended to reflect this increase.
The Income Tax Act says any amendment to the partnership deed is prospective, i.e., applies from the date of amendment forward, not retrospectively from the start of the financial year.
Your Concern:
How can the enhanced remuneration apply for the entire year, if the deed amendment is only prospective?
Explanation & Practical Solution:
Prospective Effect of Amendment
Legally, any change in the deed takes effect only from the date it is executed.
The old deed applies from 01.04.2009 till the amendment date.
The new remuneration rates apply only from the amendment date onward.
What if the Deed Does Not Specify Exact Figures?
If the deed states that partner remuneration will be paid "as per Income Tax Act Section 40(b)" without fixed figures, you may not need an immediate amendment for the increased rates.
The increased rates will be deemed applicable for the whole year since the deed refers to the Act directly.
If Fixed Figures Are Specified in Deed
You must amend the deed to reflect new rates.
For the period before amendment, only the old rates are allowable.
For the period after amendment, new rates apply.
Tax Deductibility for the Entire Year
To claim full benefit of increased remuneration for the entire year, the amendment should ideally be made effective from the start of the financial year (1 April), but since retrospective amendment isn’t legally valid, tax authorities generally allow only prospective application.
The firm can argue the amendment was effective from the date of execution, and only remuneration after that date qualifies under new rates.
In practice, firms often pass the amendment at the earliest possible date and claim deduction accordingly.
Context:
The Income Tax Act, Section 40(b) governs the allowability of remuneration (salary/profit share) paid to partners as a deductible expense for the firm.
The budget increased the allowable rate of partner remuneration for the current year.
However, the partnership deed needs to be amended to reflect this increase.
The Income Tax Act says any amendment to the partnership deed is prospective, i.e., applies from the date of amendment forward, not retrospectively from the start of the financial year.
Your Concern:
How can the enhanced remuneration apply for the entire year, if the deed amendment is only prospective?
Explanation & Practical Solution:
Prospective Effect of Amendment
Legally, any change in the deed takes effect only from the date it is executed.
The old deed applies from 01.04.2009 till the amendment date.
The new remuneration rates apply only from the amendment date onward.
What if the Deed Does Not Specify Exact Figures?
If the deed states that partner remuneration will be paid "as per Income Tax Act Section 40(b)" without fixed figures, you may not need an immediate amendment for the increased rates.
The increased rates will be deemed applicable for the whole year since the deed refers to the Act directly.
If Fixed Figures Are Specified in Deed
You must amend the deed to reflect new rates.
For the period before amendment, only the old rates are allowable.
For the period after amendment, new rates apply.
Tax Deductibility for the Entire Year
To claim full benefit of increased remuneration for the entire year, the amendment should ideally be made effective from the start of the financial year (1 April), but since retrospective amendment isn’t legally valid, tax authorities generally allow only prospective application.
The firm can argue the amendment was effective from the date of execution, and only remuneration after that date qualifies under new rates.
In practice, firms often pass the amendment at the earliest possible date and claim deduction accordingly.
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