Increase in limit of remuneration to working partners of a firm allowed as deduction
Section 40 of the Act provides for amounts that shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession".
Sub-clause (v) of clause (b) of the said section provides for disallowance of any payment of remuneration to any partner who is working partner which is authorized 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 partners during the previous year exceeds the aggregate amount computed as hereunder:
|
(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 percent of the book-profit, whichever is more; |
|
(b) |
on the balance of the book-profit |
at the rate of 60percent: |
2. This limit was put in place on the statute w.e.f AY 2010-11. It is now proposed to amend the limit of remuneration to working partners in a partnership firm, which is allowed as deduction. It is proposed that on the first Rs 6,00,000 of the book-profit or in case of a loss, the limit of remuneration is increased to Rs 3,00,000 or at the rate of 90 per cent of the book-profit, whichever is more as follows:
|
(a) |
On the first Rs.6,00,000 of the book- profit or in case of a loss |
Rs. 3,00,000 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 percent: |
3. The amendments to sub-clause (v) of clause (b) of section 40 of the Act will take effect from the 1st day of April, 2025 and will, accordingly, apply in relation to assessment year 2025-2026 and subsequent years.
[Clause 14]
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