Can a propietor pay salary to his wife from prop firm?

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Querist : Anonymous

Querist : Anonymous (Querist)

06 January 2014 Can a proprietor pay salary to his wife from Proprietorship firm ?
Does he need to club it in annual return or can file a separate return for his wife?

Anumanchipalli Sathikonda

Anumanchipalli Sathikonda (Expert)
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06 January 2014 Mr./Ms.XXXXXXX

Yes, but the deduction of the expenditure from the income of the proprietor is subject to the provisions of section 40A(2)(b) of the Income-tax Act, 1961.

If the said payment of salary is in the opinion of Assessing Officer is not excessive or reasonable having regard to the value of services provided by the wife of the proprietor and there is a legitimate need for her services for the business of the proprietor, the salary paid to the wife of the proprietor will be allowed as a deductible expenditure. If any of the above conditions are not satisfied the Assessing Officer may disallow the expenditure on salary either wholly or partly depending upon satisfying the conditions.

If all the above conditions are satisfied no need of adding back the expenditure to the income of the proprietor while computing his total income.(clubbing)

If the total income of wife of the proprietor exceeds the maximum amount which is not taxable, she has to file her own return of income.

Best Wishes

SathikondaA

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