| Question And Answer | |
|---|---|
| Subject: | Partner’s Remuneration |
| Category: | Income-Tax |
| Querist: | Kiran |
| Answered by: | Law Intern |
| Tags: | partnership deed, remuneration to partners, Taxation of partnership firm |
| Date: | August 3, 2025 |
In a partnership Firm Partners remuneration was quantified in partnership Deed, but yearly remuneration was finalised on the basis of partner’s performance in that year, which will be less than remuneration as per Partnership deed and remuneration is different for all partners. whether it is acceptable in income tax U/s 40(b). If not provide case laws .
As per CBDT Circular No. 739, the method for determination of remuneration to partners under Section 40(b) should be clear and not vague. So, if there is an objective method specified in the partnership deed for computing the remuneration and the total remuneration is within the limits prescribed under Section 40(b), it will pass muster and the deduction should be allowable. However, if the deed only mentions a maximum amount and leaves the performance-based allocation to subjective discretion or mutual agreement at year-end, the deduction may be disallowed due to non-compliance with the quantification requirement.