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)
S. 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits.
S. 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration.
Accordingly, CBDT circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration goes beyond s. 40(b)(v).
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