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Partner salary distribution ratio same???-query

Ankit (C.A.-Student) (680 Points)

05 July 2013

all query related to partnership firm taxation A partnership firm have a remuneration clause in partner ship deed in a same way as normally every deed contains like compliance of Sec 40b. Say for a FY max allowable salary is 30lac, and firm distribute among partner in ratio of 5:3:2 but profit sharing ratio is 3:1:1 My query is whether firm can distribute salary in this manner(5:3:2)?? Does income tax alllow it?? secondly can same partnership firm distribute salary in next year in 77:13:10, but again profit sharing ratio remain 3:1:1??? Does consistency have to be followed every year for income tax??? Partnership deed doesnot contain any clause regarding distribution of salary among partner, but defined only max amount allowed. Please help and clarify

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Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 05 July 2013

Normally speaking the remuneration that is disallowed u/s 40(b) is chargeable to tax in the hands of the p'ship firm and exempt in the hands of the partners, but the one that the firm claims teh deduction is taxable in the hands of the firm.

So it should be clearly stated in the partnership deed that how much salary needs to be distributed amongnst each of the partners that is being mutually agreed amongnst the partners at the time of drafting the deed.

Yes cinsistency shud be followed from year to year. So the salary ratio that is prescribed in the p'ship deed shud be followed consistently from year to year. Any change shud be duly authorized by registering the deed.