Partnership Firm Remuneration

Dear Sirajul Sir,

First,  Indian Partnership Act 1932 is still valid as it was in 1932. :))

Now Indian Partnership Act says that a "Partner is not entitled to remuneration for taking part in the business of the firm subject to contract between the Partners"

So remuneration can be paid to Partners as per agreement between them, that's whywe have remuneration clause  in the Partnership deed..

Now coming to Income Tax - It says that remuneration to partners will be allowed as deduction in computing the Income of the Firm if following conditions are fulfilled -

1) Remuneration is authorized by the deed

2) It should be payable to Working Partners.

3) Amount of deduction shall not exceed the amount as mentioned in Sec 40(b)\

Now Sec 40(b) says this

 Profits means "current year PGBP before allowing deduction of remuneration"

Now if Remuneration to partners exceed this amount then the excess shall not be allowed as deduction in computing the income of the firm ......(at the same time the excess amount shall not be taxable in the hands of Partners only remuneration to this amount which is allowed as deduction to the Firm shall be taxable in the hands of Partners)

Therefore it is not necesary that remuneration to Partners should be profit linked, I mean there can be fixed remuneration as well, only thing is it has to be approved by making an amendment in the deed.

No need to form a Company for this, U just have to make an amendment in the deed & submit its copy to the Registrar odf Firms as well as ur Assessing Officer.