ExpressITR || Allowable / Disallowable Remuneration Calculation till AY 2024-2025
Allowable / Disallowable Remuneration Calculation
The maximum permissible remuneration under Section 40(b) is allowed for any working partner, provided:
- It is authorized by the partnership deed.
- It complies with the terms of the deed and pertains to a period after the date of the deed.
The remuneration exceeding the specified limits below will not be deductible:
Permissible Limit Based on Book Profit
1. On the first ₹3,00,000 of book profit or in case of loss: ₹1,50,000 or 90% of book profit, whichever is higher.
2. On the balance book profit: 60% of the balance.
Book Profit | Permissible Limit |
On the first Rs. 300000 of Book Profit or in case of Loss | Rs. 1,50,000 or 90% of Book Profits whichever is higher |
On the Balance Book Profit | 60% of Book Profits |
Example
Book Profit for Allowable Remuneration: ₹3,99,314
(After the notional set-off of unabsorbed depreciation of ₹0)
(After the notional set-off of unabsorbed depreciation of ₹0)
Step-by-Step Remuneration Calculation
1. 90% of the first ₹3,00,000: ₹3,00,000 × 90% = ₹2,70,000
2. 60% of the remaining amount: ₹(3,99,314 - 3,00,000) = ₹99,314
₹99,314 × 60% = ₹59,588
₹99,314 × 60% = ₹59,588
Maximum Allowable Remuneration: ₹2,70,000 + ₹59,588 = ₹3,29,588
Disallowed Remuneration Calculation
Total Remuneration Paid: ₹3,99,314
Allowable Remuneration: ₹3,29,588
Disallowed Remuneration (under Section 40(b)): ₹3,99,314 - ₹3,29,588 = ₹69,726
Allowable Remuneration: ₹3,29,588
Disallowed Remuneration (under Section 40(b)): ₹3,99,314 - ₹3,29,588 = ₹69,726
We hope this explanation helps clarify the calculations and limits under Section 40(b)!
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