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PAYMENT OF INTEREST SALARY BONUS COMMISSION OR REMUNERATION MADE BY FIRM TO ITS PARTNERS SECTION- 40(b)

Income Tax - Partnership Firm / Limited Liability Partnership (LLP) - 02 - 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: Payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred as remuneration) is to a working partner. If it is paid to a non-working partner, the same shall be disallowed. The remu .....

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ng partners. Upto A.Y. 2009-10, the maximum permissible deduction was as under : Professional firms Business firms Book Profit/Loss % or amount of deduction Book Profit/Loss % or amount of deduction i. Loss Rs.50,000 i. Loss Rs.50,000 ii. Profit ₹ 50,000 ii. Profit up to ₹ 50,000 Rs.50,000 up to ₹ 50,000 Rs.50,000 up to ₹ 1,00,000* 90% up to ₹ 75,000* 90% next ₹ 1,00,000 60% next ₹ 75,000 60% Balance profit 40% Balance profit 40% *(higher of ₹ 50,0 .....

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l 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 under the head profits & Gains of business or profession. The interest paid by the firm to the partners is allowable as per section 40(b). Interest paid by the firm to its partners on their fixed capital account, cu .....

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