2. Partner’s salary deductibility –Pre and Post Finance Act 2016
It is to be noted here that Section 44AD of the Act begins with a non-obstante clause “(1) Notwithstanding anything to the contrary contained in sections 28 to 43C”… Therefore by virtue of the non-obstante clause, Section 44AD of the Act has a superior position vis-� -vis the other provisions of the Income Tax Act. Nevertheless, Section 44AD(2) of the Act also specifically mentions that any deductions allowable under Section 30 to 38 shall be deemed to have been given full effect. Therefore there are no specific deductions available for the assessee opting for presumptive taxation under Section 44AD of the Act. However there exists an exception by virtue of a proviso to Section 44AD(2), wherein, partner’s salary and interest, subject to the threshold limits specified under Section 40(b) can be deducted from the amount of eligible income of the assessee which is 8% of the gross turnover of the business of the assessee. Hence in a nutshell, a partnership firm opting for presumptive taxation scheme under Section 44AD of the Act can deduct the partner’s salary subject to the threshold limits specified under Section 40(b).
However, Finance Act 2016 has deleted the proviso appearing in Section 44AD (2), consequent to which, deduction of the partner’s interest and salary is not further allowed for a partnership firm opting for presumptive scheme under Section 44AD of the Finance Act 2016 In this context, we would, in this article specifically, dwell upon the taxability of the Partner’s salary in the Partner’s hand when the Partnership firm is taxed under Section 44AD on presumptive basis, especially in light of the amendment made under the Finance Act 2016.