Limit of allowable partners remuneration u/s 40(b) increased from AY 2025-26 onwards
Finance Bill 2024 has increased the limit of allowable partners remuneration u/s 40(b) from AY 2025-26 onwards.
Under the provisions of section 40(b) of the Income Tax Act, 1961 (the Act), the salary/remuneration paid to partners of a firm is an allowable expenditure on satisfaction of all the following conditions:
(i) Partner to whom salary is paid should be a working partner,
(ii) The remuneration paid to the partner should be authorised by and in accordance with the Partnership Deed
(iii) The remuneration paid to partner does not relate to period falling prior to the Partnership dee.
(iv) The remuneration paid to partner should be within the ceiling prescribed under the section.
This limit of remuneration to partners as prescribed u/s 40(b) was last revised by the Finance Act, 2009 w.e.f. AY 2010-11 as under:
|
(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 |
It is now proposed to double 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:
Revised limit of Remuneration to a Working Partner from AY 2025-26 onwards
|
(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 per cent |
The proposed 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.
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