26 July 2025
Great question! Here's a clear explanation:
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### Taxability of Partner’s Remuneration & Filing under Section 44AD
**1. Nature of Partner’s Remuneration:**
* Remuneration (also called **salary or commission**) received by a partner from a firm is **business income** in the hands of the partner. * It is taxable as **profits and gains of business or profession** under the Income Tax Act.
**2. Can a Partner file Income under Section 44AD?**
* **Section 44AD** applies to **eligible businesses** (individuals, HUFs, and firms) with turnover up to ₹2 crore, allowing presumptive taxation at 8% of turnover. * However, **partners cannot opt for presumptive taxation under Section 44AD** in respect of remuneration received from the firm because:
* The remuneration is a **receipt from business/profession** (not turnover from a business carried on independently by the partner). * Partners’ remuneration is governed by **Section 40(b)** (allowability of partner’s remuneration in firm’s hands), and the partner reports this remuneration as business income. * The income received as partner’s remuneration is **not turnover from a business carried on by the partner**; rather, it is payment for services as partner.
**3. Relevant Sections:**
* **Section 28(iii):** Income chargeable under the head "Profits and gains of business or profession" includes salary, bonus, commission or remuneration received by a partner from a firm. * **Section 40(b):** Allows deduction of remuneration paid to partners in the firm’s income computation. * **Section 44AD:** Does **not explicitly cover partner’s remuneration**; it covers eligible businesses and professions carrying on business on their own.
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### **Summary:**
| Question | Answer | | -------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | | Is partner’s remuneration business income? | Yes, under Section 28(iii) | | Can partner opt for Section 44AD? | No, because remuneration is income from a partnership business, not independent business turnover | | Which section governs partner’s remuneration taxability? | Section 28(iii), Section 40(b) |
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**If the partner has any other independent business income, then that income can be offered under Section 44AD. But remuneration from the firm cannot be offered under Section 44AD.**
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If you want, I can also help with sample computations or drafting return filing advice for such partners! Would that be useful?
CAclubindia
