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Remuneration to Partner

Aditya Maheshwari (CA in Practice) (35867 Points)

12 July 2009

The rate of distribution of salary has been increased in the budget for the current year. However there is one problem in the same that amendment in the partnership deed will be required as per section 40(b) of the Income Tax Act but as per Income Tax Act the alteration in the deed will be prospective. And there is no clarification for the same also that how the enhanced remuneration will be available for the entire year?

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2 Replies

Anumanchipalli Sathikonda (Tax Consultant) (1559 Points)
Replied 13 July 2009

Mr. Aditya Maheswari

The proposed amendment wil take effect from 1-4-2010 accordingly will apply to the assessment year 2010-2011.

Clause (v) of section 40 reads as under:

"(v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year -------"

As per the above the conditions laid down for allowbility of the remuneration are

(1) the said remuneration should be authorised by the paartnership deed

(2) the payment of the remuneration should be in accordance with the terms of the partnership deed

(3) the said remuneration should relate to the period falling after the date of such partnership deed.

Now what you have to do to claim the remuneration is

Execute an amendmend deed to the existing partnership deed with respect to the payment of remuneration to the working partners, specify the date in the partnership deed when the amendment will come into force and also specify the terms of payment.

If you do that you have complied the conditions laid down in clause (v) of section 40 of Income-tax Act.

Hope you have got clarification.

Best Wishes

Sathikonda

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SURESH KABRA (chartered accountants) (121 Points)
Replied 18 June 2010

DEAR, PARTNERSHIP DEED SHOWN THAT REMUNERATION PAYABLE AS PER RULES OF SEC 40 A - HOW THE REMUNERATION CALCULATED FOR THE YEAR - I.E. Rs. 150000/- IS APPLICABLE FOR WHOLE OF THE YEAR OR PART I.E. AFTER THE DATE OF BUDGET NOTIFIED.