Disallowed partner’s interest and remuneration process as per section 40 in Part OI Point no 8A h

ZenIT || Disallowed Partners Interest and Remuneration Process as per Section 40 in Part OI Point no 8A h

The process to enter disallowed partner’s interest and remuneration as per section 40 in Part OI Point no 8A h.
“Amount of interest salary, bonus, commission or remuneration paid to any partner or member”

According to section 40(b)(v), any payment of remuneration to a partner who is a working partner, authorised by, and in accordance with, the terms of the partnership deed, and relates to any period falling after the date of such partnership deed, will be disallowed if the amount of such payment to all partners during the previous year exceeds the aggregate amount computed as follows:

      (a) on the first Rs. 3,00,000 of the book profit, or in case of a loss of 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.

Explanation 3 to section 40(b) defines “book profit” as 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.

As per Section 40(b)(iv), any payment of interest to a partner authorised by, and in accordance with, the terms of the partnership deed, and relates to any period falling after the date of such partnership deed, will be disallowed if such amount exceeds the amount calculated at the rate of 12 per cent simple interest per annum. Therefore, payment of simple interest to any partner is allowed only to the extent of 12% per annum as a deduction as per section 40(b). Even if the partnership deed authorises a higher rate of interest than 12% to any partner, the excess interest will not be deducted.

To enter the partner’s remuneration and interest value, please follow the steps provided below:

Step 1:
Open the Income Tax software >>Go to Transactions >> Click on Business & Profession Income:


Step 2:
Go to Remuneration U/S 40b >> Enter partner details and click on the 'Calculate' button 


NOTE:- The Calculate button computes the remuneration as per Section 40(b) and automatically fills in the disallowed partner's remuneration under Other Information-2 of General Information/P&L/BS Point 8A(h).

Step 3:

Go to Transactions >> General Information BS/ P& L >>Other Information 2 and Save the details:


Step 4:
To Verify the Amount Generate JSON/XML >> Click on Find Button>> Search "schedulebp" And Scroll Down and search option "AmtDebPLDisallowUs40"  Verify The Same Roundoff amount With 8A H of OI-2



Hope This Helps.
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