Allowability of salary to partners in partnerships

The payment of salary to partners in a partnership firm in India cannot exceed the monetary limits specified under the Income Tax Laws and are available subject to the fulfillment of conditions:

  • Remuneration should be paid to a working partner
  • Remuneration must be authorized by the Partnership Deed
  • Remuneration should not be paid for the period prior to Partnership Deed
  • Remuneration should not exceed the permissible limit mentioned in Section 40(b)

Section 40(b) provides a uniform limit for professional firm and non – professional firm, whether the firm is a limited liability partnership (LLP) or a general partnership. The limits are provided as follows: The following will be the maximum amount allowed as deduction: On first Rs.3lakh of book profit or loss– Rs.150000 or 90 percent of “book profit”, whichever is higher On the balance of the book profit – 60 percent of the remaining “book profit”  In case, “book profit” is negative, then only Rs.150000 will be the maximum permissible amount of deduction. “Book Profit” refers to the net profit, as shown in the profit and loss account for the relevant previous year, as increased by the total amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. It is very important to note that even if the partnership deed fixes the quantum of remuneration to be paid to the partners, in no case it should exceed the maximum permissible limit mentioned in the provisions of the Act. ____________________________________________________________________________________________________ Feel free to write to us,at [] or call us at +91 88208208 11.  

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