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Salary of partner

obeid (learner) (292 Points)

14 March 2012

In Partnership firms Income Tax return salary of a partner has been disallowed because of loss. Now for filing the partners individual return the salary from the firm will be nil is it coorect? or it should be the actual salary given during the year which has been disallowed please expain.....

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5 Replies

Sonam Bidasaria (CA) (770 Points)
Replied 14 March 2012

Please confirm whether in the books of Partnership firm, whether there is net loss or profit before providing remuneration?

If there is book loss before providng remuneration, then the entire salary will be taxed in the hands of partners.

If there is book profit , then the remuneration paid over and above of the amount determined in accordance with Sec 40(b) will be taxed in the hands of partners.

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chandan singh (articles) (125 Points)
Replied 14 March 2012

Hi friends,

as per my point of view upto 150000 partners remuneration is allowed in case of loss also so it can't be totally disallowed.and the part of partners remuneration which is allowed as a expense in p/l account of firm for that amount partner is liable to pay tax and not on the left amount.

Regards

chandan singh

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obeid (learner) (292 Points)
Replied 16 March 2012

there is net loss of Rs.12,000/- before providing remuneration. Remuneration as per deed is Rs.3,30,000. so net loss cames to Rs.3,42,000 so remuneration has been disallowed and a loss of rs. 12,000 has been filed in firms return. By mistake the minimum remuneration of 1,50,000 has not been calimed in firms return.

My query is in the partners individual return the salary from the firm will be 3,30,000 or nil?

Please clarify on this "If there is book loss before providng remuneration, then the entire salary will be taxed in the hands of partners".

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 20 March 2012

Section 40(b) talks only about the disallowance in case of the partnership firm & not about the partners. So the total remuneration padi to the partners during the financial year, would be considered as business income & would be charged to tax accordingly.

In your case the total remuneration of 3.30lacs paid to the partners wud be chargeable to tax as business income in the hands of the partners.

bcshettyco (Chartered Accountant In Practice) (65 Points)
Replied 20 March 2012

Any interest, salary, bonus, commissions,or remunerations by whatever name callled which is due to or received by partner of a firm from the firm is taxable in his hands under sections 28(v) under the head profits & gains of business or professions.

whereas from the assessement year 2010-11 onwards, a firm can obtain maximum of 1,50,000/- as deduction if book profit is negative.

So in the case of firm,the firm cannot obtain deduction upto 3,42,000/-