TAXATION OF REMUNERATION FROM PARTNERSHIP FIRM or LLP IN THE HANDS OF PARTNER
Remuneration to be taxed under head PGBP: Remuneration from partnership firm or LLP is to be taxed under head PGBP as per section 28 (v) in the hands of partner.
Remuneration which has not been allowed in the hands of partnership firm or LLP shall not be taxed in the hands of partner.
In nut shell, only that portion of remuneration shall be taxed in the hands of partners which have been allowed to be deducted in the hands of partnership firm or LLP so as to avoid double taxation.
Calculation of allowable Remuneration in the hands of Firm or LLP: Remuneration allowable in the hands of partnership firm or LLP is subject to condition specified in section 40(b).
Maximum amount of remuneration allowable-Any payment of remuneration to any working partner, which is authorised by, and is in accordance with, the terms of the partnership deed to all the partners during the previous year shall not exceed the aggregate amount computed as hereunder :—
|(a)||on the first Rs. 3,00,000 of the book-profit or in case of a loss||Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more;|
|(b)||on the balance of the book-profit||at the rate of 60 per cent|
Remuneration clause in the Partnership Deed or LLP agreement: Remuneration clause has to be specified in the deed or agreement executed and it should specify the amount of remuneration to be paid to partners or specify the manner of quantifying of such remuneration.
Working Partner “working partner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner.
Note Payment of rent to a partner for premises owned by him is not Remuneration to partner and accordingly it is not be taken into consideration for section 40(b).
Meaning of Book-Profit “Book-profit” means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.
In nut shell, Book-profit shall be profit as to be computed for taxation under head PGBP but before deducting remuneration to partners.
Treatment of unabsorbed depreciation and carried forward business loss: Unabsorbed depreciation is to be deducted in the process of determination of book profit but carried forward business loss shall not be deducted.
Computation of Book-Profit
Profit as per Profit & Loss A/c xxxxx
Add: Partners’ Remuneration xxxxx
Less: Various allowances under Income-tax Act xxxxx
Add: Various disallowances under Income –tax Act xxxxx
Add: Depreciation as per books xxxxx
Less : Depreciation as per Income –tax Act xxxxx
Less: Unabsorbed depreciation xxxxx
Book Profit xxxxx