• Tax on partner renumeration - taxable at the hands of partner?

Lets say Profit is 10,00,000 (10 Lakhs) every month
60% of profits is paid as partner remuneration (Each Partner gets 3,00,000)

40% of profits is kept aside and 30% income tax is paid on it (remaining amount is paid back as remuneration to partners)

Now is the initial remuneration of 3,00,000 taxable in the hands of the partner?
Asked 9 months ago in Income Tax from Bangalore, Karnataka
yes its taxable under the head PGBP
Lalit Bansal
CA, Delhi
556 Answers
37 Consultations

5.0 on 5.0

If the profit before remuneration to the partners is Rs 10 Lakh p.m., the limit under the Income Tax  Act for allowing remuneration as an expenditure in the hands of the firm will be as under:

Net profit p.a.                                Rs 120 Lakhs
Remuneration allowed:
I st 3 Lakhs 90%                            Rs 2,70,000/-
Balance 117 Lakhs @ 60%           Rs 70,20,000/-
Total                                               Rs 72,90,000/-

Now the remuneration actually given to both the partners  @ Rs 6 Lakhs p.m. for two partners
Total remuneration actually paid to the partners by the firm  Rs 72,00,000/-
Remuneration allowed as per the Income Tax Act  Rs 72,00,000/- ,as it is less than the limits specified under the IT Act.
The Net profit of the firm after remuneration  Rs 48,00,000/- 
The firm will pay tax on Rs 48 Lakhs, subject to allowances and deductions as per the Income Tax Act.
The remuneration of Rs 72 Lakhs in the hands of the partners will be taxed as business income under the Income Tax Act.Thus each partner will pay tax on Rs 36 Lakhs , his share of remuneration of Rs 72 Lakhs, subject to the allowances and deductions under the Income Tax Act. 
B Vijaya Kumar
CA, Hyderabad
857 Answers
55 Consultations

5.0 on 5.0

Hi

Yes, such remuneration shall be taxable in hands of the partners. The taxes shall be calculated on the basis of slabs of individual partners.
Lakshita Bhandari
CA, Mumbai
2016 Answers
63 Consultations

5.0 on 5.0

Hi,

Yes, the partner remuneration is taxable in the hands of the partner. Further, it's an allowable deduction while calculating firm's tax profit subject to limits provided.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards
Abhishek Dugar
CA CS B.Com
Abhishek Dugar
CA, Mumbai
3452 Answers
155 Consultations

5.0 on 5.0

Hello,

Yes, remuneration paid from the firm to a partner is taxable in the hands of the partner.

Trust this clarifies your query. 

Feel free to call / get back in case of further clarifications. 

Thanking You. 

Regards,
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
Rohit R Sharma
CA, Mumbai
2104 Answers
91 Consultations

5.0 on 5.0

Hi,

Yes, the initial remuneration of Rs. 3 lakhs is taxable in the hands of the partner, to the extent allowed as per section 40(b) of the Income-tax Act, 1961.

Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
23 Consultations

5.0 on 5.0

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