Tax Audit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 June 2010 Hi

Can any one tell me?

Salary and remunaration to partner possible together?

What is differenc between salary and remunaration

Aditya Maheshwari

Aditya Maheshwari (Expert)
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25 June 2010 Only remuneration to partner allowable u/s 40(b) not salary.

Also the same is allowable subject to mention of the same in the partnership deed and the following limits
“(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”.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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25 June 2010

Salary and remuneration is the same meaning .
Salary here means: salary ,commission ,remuneration (or any name whatever name called).

In all most all the partnership ,provision for salary has been included and decided with mutual consent .But as per Income Tax Act ,full amount of salary is not allowed as expenses in profit & loss account but salary is restricted to % of profit before salary to the partner.There are some conditions also which are to be complied to claim deduction of salary as expense in P & L account of partnership firm.
Conditions are defined in section 40(b) of the income tax act.

1.Salary should be paid to working partner.
2.Salary must be written/authorised by the Partnership deed
3.Salary should be related to the period after the partnership deed date.
4.Salary must be with in limit of % of Book profit.

Salary here means: salary ,commission ,remuneration (or any name whatever name called)Now detail of each condition.1. Working partner: salary to sleeping partner is not allowed .and working partner definition has been given in explanation 4 of the section 40(b)

•working partner means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner

From above definition it is clear that " full time" attendance to any or all of the tasks of the partnership .2.Salary must be written/authorised by the Partnership deed:To claim the expense of salary of partner in p& L salary should be authorised by the partnership deed and it should also be according to the conditions/terms defined in the partnership deed.

•Clause in partnership should be clear and amount should be defined.
•Board has issued a circular also related to clause in partnership deed for salary to partners

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