Remuneration to Partners

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This discussion clarifies rules around partner remuneration when a partnership firm incurs a loss. According to the Income Tax Act, 1961, and specific partnership deeds, remuneration is permissible up to a certain limit based on book profit, even if the P&L account shows a loss. The general rule allows remuneration up to £150,000 or 90% of book profit (whichever is higher) on the first £300,000 of book profit, and 60% on the balance. In this case, with a book profit of £32,377, the maximum allowable remuneration is £29,139 (90% of book profit).

VIPIN GUPTA

VIPIN GUPTA (Querist)

15 November 2020 In one of our case there is a loss in partnership firm after giving remuneration , and at per deed it is mentioned that "the above partners shall not be entitled to draw any remunertion in the accounting year period in which the partnership firm has sufferred loss on the basis of the book profit as computed under the provisions of the Income tax Act, 1961". Can we give remuneration upto the limit there is no loss in Profit and Loss account or we can not give any remuneration.
I.e Loss is Rs 111623.00
Add Remuneration Rs 144000.00
Book Profit Rs 32377.00

Can we give Remuneration upto Rs 32377/-

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 November 2020 You can give remuneration upto 1,50,000.
The maximum amount of salary, bonus, commission or other remuneration to all the partners during the previous year should not exceed the limits given below:

On first 3 lakhs of book profit or in case of loss – ₹ 1, 50,000 or 90% of book profits (whichever is higher).
On the balance book profit 60% of book profit.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

15 November 2020 As per 40(b)(v) read along with the cited clause of the partnership deed, the firm can give maximum remuneration of 29,139/- only ie., 90% of the book profit viz., Rs. 32,377/-.

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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 November 2020 Agree with Mr Chakrapani Warrier's reply.

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