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Remuneration under new provisions of Section 40 (b)

Pawan R Balwani (Article Assisstant) (57 Points)

08 December 2009

Dear Friends,

Can anybody explain me How the new provisions of section 40(b) will be applicable ?

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8 Replies

Arun Kumar (Deputy Manager Assurance) (230 Points)
Replied 08 December 2009

As Per the Modified Provisions No need to Categorise the Firm as "Professional" or "Others", irrespective of the Nature of business they carryout the Remuneration will be Aggregate of Following

a) Rs.150000 or 90% of Profit On First Rs.3 Lacs or Loss and

b) 60% of Balance Book Profit over and above Rs.3Lacs

The Full Provision is given below

As Per 40(b)(v) "any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :

(1) in case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section

(a) on the first Rs. 1,00,000 of Rs. 50,000 or at the rate of the book-profit or in case 90 per cent of the book- of a loss profit, whichever is more;

(b) on the next Rs. 1,00,000 of at the rate of 60 per cent; the book-profit

(2) in the case of any other firm

(a) on the first Rs. 75,000 of Rs. 50,000 or at the rate of the book-profit, or in case 90 per cent of the book- of a loss profit, whichever is more;

(b) on the next Rs. 75,000 of at the rate of 60 per cent; the book-profit

The following items shall be substituted for the existing items (1) and (2) of sub-clause (v) of clause (b) of section 40 by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :

(a) on the first Rs. 3,00,000 of the book-profit or in case of a loss	Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more;
(b) on the balance of the book-profit	at the rate of 60 per cent"

1 Like

Vatsalya Bhardwaj (Final Student) (427 Points)
Replied 08 December 2009

section 40(b) remuneration to partners in a firm

Proposed remuneration structure ( both for Professional & non professional to bring uniformity)

on the first Rs. 3,00,000 of the book-profit or in case of loss	Rs. 1,50,000 or @ 90 per cent of the book-profit, whichever is more
on the balance of the book-profit	at the rate of 60 per cent;

This amendment will take effect from 1st April,2010 & accordingly effected from 2010-11

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 08 December 2009

Yup the old amounts of 75000 and 100000 for non prof and prof services are replaced by 300000 uniformly for both..The calculation will be as Vatsalya specified

Pawan R Balwani (Article Assisstant) (57 Points)
Replied 09 December 2009

Originally posted by :Pawan R Balwani Thanks for sharing, but i wanna know that as the above changes were amended by the finance act 2009 which was issued in June and the above changes will be affected in the p'ship deed from june onwards only.So does that mean that for the period from April to June the old provisions of 40(b) will be applicable???Pleae guide
"	Dear Friends, Can anybody explain me How the new provisions of section 40(b) will be applicable ?	"

Abhishek (NA) (42 Points)
Replied 20 December 2009

Mr. Pawan

Since the amendment has been made in Finance Act-2009 which will be applicable from 1/04/2010 only, so no need to go to when this was published.

hemanta (student) (25 Points)
Replied 30 August 2011

Can any told me whether commission on sales given to partners will form part of remuneration or not.

(Guest)

tax calculator for computation of remuneration

https://taxbykk.blogspot.com/2011/07/fastest-calculator-of-max-remuneration.html

thanks

kaushal

Nupur Sharma (CA) (426 Points)
Replied 06 December 2014

I have a query to ask here. What if the partnership firm is based on a slightly different business model? Like in case there are 3 partners and they undertake IT projects from overseas clients. Suppose, Project A has been undertaken by first partner and project B by the second partner, Project C by the third partner and a Project D on which first and second partners are working. Now first partner will get all the income generated from project A plus 50 % from Project D and similarly second partner will get all income generated from Project B plus 50% from Project D.

Will limits of section 40(b) apply here as well? But under what head? This is not salary. Should all this sharing of income from projects be simply treated as sharing of profits because this cannot be treated as remuneration in my opinion.

I would really appreciate if somebody could guide me on this. Quite a technical issue for me.

Thanks in advance