Every partnership firm declares partner compensation and interest as an expense. However, the income tax statute 1961 limits partner compensation and interest. Section 40(b) governs partner compensation and interest.
This document covers
Conditions to be followed by Partnership Firm
Note: If the company is a partner in the firm and the director of the company or shareholder of the company is a employee of the Firm, it will be considered as Salary. It will not be considered as remuneration to partners.
|S.No||Book Profit||Quantum of Deduction|
|1||On the first Rs 3 lakhs of book profit or in case of loss||Rs 1,50,000 or 90% of book profit whichever is higher|
|2||On the balance of book profit||60% of profit|
Interest can be allowed as deduction only if the following conditions have met