Income Tax Return

There is no restriction of giving remuneration & interest to partner's; BUT NOT FROM ASSESSED INCOME U/S. 44AD.

Say, turnover of a partnership firm in any PY is 60 lakhs by cash mode & 80 lakhs through banking channels. & gross profit before deduction of remuneration & interest is 20 lakhs. As per partnership deed, remuneration to working partners is to be paid say, 10 lakhs.

Under normal assessment net taxable income would be 10 lakhs after remuneration & interest.

While, as per sec. 44AD.... Taxable income (minimum) will be 80L *6% +++ 60L*8% ....  i.e. 9.60L.

Before amendment to the section as per finance act, 2016, remuneration & interest was deductible from the said estimated income of 9.60 L [subject to limits specified u/sec. 40(b)].

BUT AFTER THE AMENDMENT THE DEDUCTION OF REMUNERATION & INTEREST FROM SUCH ESTIMATED INCOME HAS BEEN WITHDRAWN.

So, pay tax liability of 30%+ cess over the said 9.60L and then distribute the remaining amount as per your choice (be it as salary, interest or as profit share), which is tax free in the hands of partners.