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Section 40(b) - Payment of interest salary etc. made by firm to its partners

Income Tax - Profit and Gains of Business or Profession - 57 - SEC - 40(b): PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION MADE BY FIRM TO ITS PARTNERS Interest and remuneration paid to the partners by a firm are not deductible. However, the interest and remuneration paid to partners by a firm are deductible if all the following conditions are satisfied: i. Payment of salary, bonus, commission or remuneration, by whatever named called is to a working partner. If it is paid to a n .....

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iv. The payment of interest to a partner should not exceed the amount calculated at the rate of 12% per annum simple interest (any interest in excess will be disallowed). NOTES: If a firm pays interest to a partner and the partner pays interest to the firm on his drawings, then the interest shall not be netted off. The interest received by the firm from the partners on their drawings is taxable in the hands of the firm as income u/h PGBP. The interest paid by the firm to the partners is allowab .....

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to the firm. v. The payment of remuneration should not exceed the following amounts (Any amount in excess shall be disallowed) On the first 3,00,000 of book profit or in case of loss 1,50,000 or at the rate of 90% of the book profit, whichever is more. On the balance of book profits At the rate of 60% Following adjustment should be made to the Net Profit under PGBP for computation of Books Profits: Only the income u/h PGBP is to be taken Current year and brought forward depreciation is to be ded .....

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