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Remuneration to partners(Partnership firm)

Pradeep k (NA) (43 Points)

22 March 2011

We started our business in june 2009.We incurred a loss for the financial year 2009-2010 & have made some profit in this financial year(2010-2011). We are planning to take remuneration for this year(Ratio 50:50). Does the below rule still apply

(i) loss or profit upto Rs. 3,00,000 --- Rs. 1,50,000/- or 90% of Book Profit whichever is more

(ii) on the balance-- 60% of book profit

Do we need to get paid within 31st March to get it reflect in this financial year

thanks

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6 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 22 March 2011

yes it will still apply in loss too..

CA ANUPAMA (CMA, CA ) (149 Points)
Replied 22 March 2011

Yes, you r correct as per Admissible partners remuneration u/s. 40 (b)(v). For calculating Income Tax, add back the remuneration which is debited to P&L A/c and then deduct the admissable partners remuneration. Then calculate the income tax @ 30% on the balance.

Pradeep k (NA) (43 Points)
Replied 22 March 2011

Thanks Anupama & Pankaj

Is the below calculation right???

For eg:- My profit for this year is 2,00,000. I can divide 1,80,000(90%) between two partners & rest 20,000 is taxable at 30%

Do we need to pay the remuneration before 31st of this month.

thanks

SHIVAM GROVER (student) (304 Points)
Replied 23 March 2011

yes u can pay tax on 20000 but there is no need to pay before 31st march....but most important u must see the partnersheep deed clauses clearly i.e must define salary to be drawn OR prescribe the manner of salary drawn as per new board circular otherwise your salary will be dsallowed and u have to pay tax on 2 lacs

Pradeep k (NA) (43 Points)
Replied 01 April 2011

I checked the partnership deed & the calculation of remuneration is different from the normal rule

-----------------------

In case of loss or book profit up to Rs.75000 --- Rs.50,000 - or 90% of book profit whichever is for the year higher

On the amount of book profit exceeding Rs.75000--- 60% of the excess over Rs.75000

but not exceeding Rs.1,50,000 for the year

On the book profit exceeding Rs.1,50,000 for the year--- 40% of the excess over Rs.1,50,000

---------------------------------

My question is do i need to abide by the rule mentioned in the partnership deed or i can follow the new rule set by the authorities.

We also have the below clause in the partnership deed which i think can be used to change the remuneration calculation :-

"That the partners can change,add,modify,delete, or vary any terms and conditions of this deed by mutual consent in writing & such addition & deletion shall not required execution of fresh partnership deed and/or supplementary deed unless the same is relating to change in profit sharing ratio"