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Payment to relative

Ankit Agarwal (student) (73 Points)

19 November 2019

Salary paid to one of the partners wife brother (partner sala) is allowed as exp to the firm and whether its have to be reported in 3cd?

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Manish Dugar (25 Points)
Replied 21 November 2019

Partners brother in law is considered as relative u/s 40A(2)(b). As per the said section, if any payment is made to a relative and the said payment is unreasonable or excessive in nature considering the fair market value of goods or services performed, the A.O. can disallow the expenditure to the extent he considers excessive or unreasonable.

Considering the above, Salary paid to partners wife brother i.e. sala of partner (brother-in-law) is allowed as expenditure to the firm if the expenditure is reasonable in nature.

Further, the same has to be disclosed in Form 3CD as payment made to persons specified u/s 40A(2)(b).

1 Like

official kamalpreetsingh (32 Points)
Replied 21 November 2019

This section is not application in some cases. There is being some exceptions also.

1 Like

Ankit Agarwal (student) (73 Points)
Replied 21 November 2019

@ kamal ji what exception?

RAJA P M ("Do the Right Thing...!!!") (127142 Points)
Replied 21 November 2019

The said salary is not acceptable if partner's salary to any other if he is not a partner or employee..

Better to consider the relative a employee in the firm and deal the same employee salary.

Ankit Agarwal (student) (73 Points)
Replied 21 November 2019

Here relative is treated as an employee only
But wife brother is considered as relative?

RAJA P M ("Do the Right Thing...!!!") (127142 Points)
Replied 21 November 2019

Originally posted by : Ankit Agarwal
	Here relative is treated as an employee onlyBut wife brother is considered as relative?

Salary paid to one of the partners wife brother (partner sala) is allowed as exp to the firm and whether its have to be reported in 3cd?

Read more at: https://www.caclubindia.com/forum/details.asp?quote=2106836&mod_id=535491#reply

What is Your exact query Dear...?

As per Your query You can't a partner's salary to any other person... Right...??? It's not allowed. In case the person is employee then You just keep the person as employee and show the expenses as per normal salary...

But wife brother is considered as relative?

Are asking about relative definition then Dont be confuse with salary... If You treated as Salary then no need query about relative definition...

FYR ->

As per the Income Tax Act: Section 2(41), “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

As per Gift tax:

Any ‘Relative’ means as per Section 56(2),

1. Spouse, 2. Brother or sister of individual or of spouse, 3. Brother or sister of either parents, 4. Lineal ascendant/descendant of individual or of spouse, 5. Spouse of relatives mentioned in 2. to 4.

Ankit Agarwal (student) (73 Points)
Replied 21 November 2019

Raja ji

My query is salary payment to wife brother who is treated as employee in a partnership firm.

Does its reporting have to be given in 3cd related party?

RAJA P M ("Do the Right Thing...!!!") (127142 Points)
Replied 21 November 2019

Originally posted by : Ankit Agarwal
	Raja jiMy query is salary payment to wife brother who is treated as employee in a partnership firm.Does its reporting have to be given in 3cd related party?

no... treat as just salary.

Ankit Agarwal (student) (73 Points)
Replied 21 November 2019

Raja ji

I am asking about its reporting in 3cd i.e payment made to related party

Whether I have to show in that?

RAJA P M ("Do the Right Thing...!!!") (127142 Points)
Replied 21 November 2019

Originally posted by : RAJA P M
	Originally posted by : Ankit Agarwal Raja jiMy query is salary payment to wife brother who is treated as employee in a partnership firm.Does its reporting have to be given in 3cd related party? no... treat as just salary.

Kapadia Pravin (17249 Points)
Replied 21 November 2019

The assessing officer may not allow you to claim expenses for payments made to specified persons ( as per Section 40A(2) of the Income Tax Act ) if :

Payment is to made to certain specified persons

AND

AO believes that such expenditure is excessive or unreasonable with regard to the fair market value of the goods,services or facilities provided.

If both the above conditions are fulfilled,the AO can disallow the expenditure to the extent he considers it excessive or unreasonable

Here the Partner's Sala is not a relative under Specified persons and hence no question of reporting in 3CD and further salary payment is allowable as expenditure.

""""
Relatives of Individual partner is such as spouse (here wife) , brother, sister ,lineal ascendant or descendant of the individual patner like parents,grandparents,son,daughter etc.""

Brother in law here in this case is not specified parson of the partner .