What is taxed in partner hands? admissible remuneration to partner or debited to pl?

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This discussion clarifies what remuneration is taxed in a partner's hands. The consensus is that admissible remuneration is taxable, even if it exceeds the deduction limits for the firm under Section 40(b). While some perceive this as double taxation, it's explained as a cap to determine allowable remuneration based on profit margins, not a true double tax.

Kunjan

Kunjan (Querist)

21 October 2024 what is taxed in partner hands?
rem. debited to pl of firm or admissible remuneration in firm's it return?
my view--> admissible rem. irrespective of what is debited in firm's prof loss.
Am i correct?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

21 October 2024 The remuneration debited to P&L is taxable in the partner's hands, regardless of whether it's fully admissible as a deduction for the firm. If the remuneration paid to partners exceeds the permissible limits under Section 40(b) of the Income Tax Act, the excess amount is not allowed as a deduction for the firm but is still taxable in the hands of the partner.

Kunjan

Kunjan (Querist)

21 October 2024 that is double taxation . i wonder why no one raised this point? anyways, ty sir

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

21 October 2024 That is because of cap in ratio of remuneration to profit margin. It is not double taxed, but capped to derive (allowable) remuneration.

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