Remuneration to partners expense or appropriation

2375 views 3 replies

Do i need to show Remuneration paid to partner by firm as expense in the profit and loss statement? We show remumeration as an appropriation in the profit and loss appropriation statement. Which treatment is correct from the point of view of ITR and Accounting Standard applicable to non-corporate level IV entity?

Replies (3)
Quick Summary
The discussion examines whether partner remuneration should be treated as an expense or an appropriation of profit in a partnership firm. It also addresses its presentation in financial statements, compliance with accounting standards for non-corporate entities, and disclosure requirements in ITR-5.

Show in Profit and Loss Appropriation A/c
Originally posted by :k chakraborty territorial io

Do i need to show Remuneration paid to partner by firm as expense in the profit and loss statement? We show remumeration as an appropriation in the profit and loss appropriation statement. Which treatment is correct from the point of view of ITR and Accounting Standard applicable to non-corporate level IV entity?

Hi, 

As per the Accounting Standards (AS) applicable to non-corporate level IV entities in India, remuneration paid to a partner of a firm should be treated as an appropriation of profits and not as an expense. Therefore, it should not be shown as an expense in the Profit and Loss Statement.

However, while filing the Income Tax Return (ITR), it's important to make a distinction between the remuneration paid to partners and the share of profits allocated to them. This is because the remuneration paid to partners is taxable as a deduction from profits, while the share of profits allocated to partners is taxed as their income.

Therefore, the remuneration paid to partners should be shown separately in the ITR under the head "Salaries and Wages" and should be claimed as a deduction from profits, subject to the limits prescribed by the Income Tax Act. The share of profits allocated to partners should be shown separately under the head "Income from Business or Profession" in the ITR and should be taxed as per the applicable tax rates.

In ITR 5 there is a specific head ( sl. no. 46 of PART A P&L ) to show remuneration paid to partners, But there is also a head under schedule BP to show any other amount allowable as deduction ( sl. no. 31). so i have two options either to show remuneration in P&L  or in Schedule BP. My doubt is whether i should disclose values in PART A P&L as per  P& L statement prepared in accordance with ICAI standards or should i put values in PART A P&L in the given format( in itr) only, deviating from P&L statement prepared in accordance with ICAI guidelines.

Also note  instructions for ITR 5 says " The reported figures of the profit and loss account should match with the audited profit and loss account, in case the accounts were required to be audited" , so should i conclude PART A P&L should be as per P&L prepared following icai guidelines? if so i should not show Partners remuneration in PART A P&L , as the same is not an item in P&L as per ICAI. 

please give your input.

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
20 June 2026
Chartered Accountant

ANV & Company

New Delhi

CA

View Details
Company
24 June 2026
Chartered Accountant

CA Darshita Shah & Co

Nadiad

CA

View Details
Company
29 June 2026
ACCOUNTANT

SANDEEP AASHISH & CO

Araria

B.Com

View Details
Company
ARTICLESHIP 08 June 2026
Internal & Taxation Article

O P Bagla & Co LLP

New Delhi

CA Inter

View Details
Company
ARTICLESHIP 24 June 2026
CA Article Trainee

Rahul Dang & Associates

Pune

CA Inter

View Details
Company
19 June 2026
Accounts Executive

Getfive Advisors Pvt. Ltd.

Ahmedabad

CA Inter

View Details
Company
25 June 2026
Accounts & Taxation Executive

Dindukurthy & Associates

Hyderabad

MBA

View Details
Company
ARTICLESHIP 04 June 2026
Article

Rakhecha & Co.

New Delhi

CA Inter

View Details