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Remuneration to partners

surabhi (CA Final) (76 Points)

16 September 2010

The partnership deed lays down the manner of quantifying the remuneration which is as per the limits specified under The Income Tax Act. For example, suppose the firm has to pay Rs. 100 as per the calculation on the profits as per the Income Tax Act. But the firm wants to pay Rs. 60 as remuneration. Can the firm pay Rs. 60 to the partners or it has to pay minimum Rs. 100?

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12 Replies

sudhakar ca cwa (service) (1518 Points)
Replied 16 September 2010

what is the need of paymet lower remuneration.

ok if did it so then it has to pay more income tax.

in my opinion income tax dept will accept becoz they are getting more revenue.

but next yesr if they want to cliam minimem remuneration they need to explain the reason to IT dept

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 16 September 2010

Dear Surabhi,

As per Income tax act, it can claim Rs.100, coz, the section says that amount payable as per P.D. In the given case, amount payable as per P.D is Rs.100. however, if its gonna claim deduction of Rs.100, it definitely has to show tha balance amount of rs.40 as liability to partners

M .K. Jha (CA Final) (484 Points)
Replied 16 September 2010

As Per Ur case, Firm Can pay Rs 60/- as partner remuneration but firm can't pay more than allowable remuneration as per Income Tax Act, 1961.

If Firm pays more remuneration then allowable as per Income Tax Act, 1961 the excess amount disallowable U/s 40(b)(v)

Firm can pays Partner's remuneration :-

(a) on the first Rs.3,00,000/- of the book-profit or in case of a loss

Remuneration :-Rs 1,50,000/- or at the rate of 90% of the book-profit, whichever is more

(b) on the balance of the book-profit

Remuneration :- at the rate of 60%;

Santosh (Student ( Final Year - New )) (348 Points)
Replied 17 September 2010

Originally posted by : Mayank Kumar Jha
	As Per Ur case, Firm Can pay Rs 60/- as partner remuneration but firm can't pay more than allowable remuneration as per Income Tax Act, 1961. If Firm pays more remuneration then allowable as per Income Tax Act, 1961 the excess amount disallowable U/s 40(b)(v) Firm can pays Partner's remuneration :- (a) on the first Rs.3,00,000/- of the book-profit or in case of a loss Remuneration :-Rs 1,50,000/- or at the rate of 90% of the book-profit, whichever is more (b) on the balance of the book-profit Remuneration :- at the rate of 60%;

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 17 September 2010

Dear Surabhi,

As the partnership deed lays down the manner of quantifying the remuneration which is as per the limits specified under The Income Tax Act, the firm has to follow IT provisions for giving remuneration to its Partners.

The deduction for remuneration can be claimed u/s 37 but subject to conditions laid down by sec. 40(b).

According to sec.40(b):---

> Any payment to non working partner as remuneration will be disallowed.

> Payment to working partner will be allowed if it is in accordance with Partnership Deed.

> The deduction for payment to working partner shall be allowed to the extent provided in deed but subject to maximum limit on Book Profit(BP) prescrived in the IT Act.

@ in case of loss---------- --------------- Up to Rs.1,50,000

@ on first Rs.3,00,000 of BP ------- 90% of book profit or Rs.1,50,000 whichever is more

@ on balance of BP ------------------------ 60% of BP

i. e. in your case it will be Rs.100.

From above provisions and discussions it can be said that (Assuming all are working partners) THE FIRM CAN PAY Rs. 60 WHICH IS LESS THAN LIMIT (Rs.100). And there is no restriction on payment of less remuneration than the limit provided by prtnership deed and It Act. Thus the firm is not bound to Pay Minimum of Rs.100 as Remuneration.

Rahul Ramesh (CA Final, BCom, MBA) (1084 Points)
Replied 17 September 2010

Originally posted by : Mayank Kumar Jha
	As Per Ur case, Firm Can pay Rs 60/- as partner remuneration but firm can't pay more than allowable remuneration as per Income Tax Act, 1961. If Firm pays more remuneration then allowable as per Income Tax Act, 1961 the excess amount disallowable U/s 40(b)(v) Firm can pays Partner's remuneration :- (a) on the first Rs.3,00,000/- of the book-profit or in case of a loss Remuneration :-Rs 1,50,000/- or at the rate of 90% of the book-profit, whichever is more (b) on the balance of the book-profit Remuneration :- at the rate of 60%;

CA ravi kisore (Assistant Manager Finance) (54 Points)
Replied 18 September 2010

deduction will be allowed only if the partnership deed specifies the amount of remuneration or lays down the manner of deteremination of quantum of remuneration and subject to within the limits specified in the Act

Manoj R. Agrawal (Service) (86 Points)
Replied 18 September 2010

better to have addendum to partnership deed showing revised remuneration, so that there would no chance of disallowance of the same.

CA Parag Jani (BCom CA DISA Forensic Auditor) (288 Points)
Replied 18 September 2010

in your case, Rs.100 will act as the MAXIMUM CEILING LIMIT computed as per IT Act & anything paid over & above that will be disallowed in the firm's computation of income. So you can pay anything less than Rs.100 but not more than that.