Disallowed partner’s 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”

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

(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 percent.

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 any partner which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of 12[twelve] percent simple interest per annum shall be disallowed. Thus payment of any simple interest to any partner is allowed only to the extent of 12% per annum as deduction as per section 40(b). Even if the partnership deed authorizes any payment of a higher rate of interest than 12% to any partner, the excess of interest will not be deducted.

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

Step 1:

Open the Income Tax software - Go to Transactions → Business & Profession Income option given in the menu bar

Step 2:

Under Business and Professional Income, Go to Remuneration U/S 40b → enter partner details and click on calculate button 

NOTE:- The Calculate button calculates the remuneration U/S 40b and then automatically populates the disallowed partner's remuneration under Other-Information-2 of General Information/P&L/BS Point 8A(h).

Step 3:

Now Go to Transactions → General Information BS/ P& L → Other Information 2 and Save the details.

Disallowed Remuneration and interest value will automatically reflect in the receptive head. 

• Related Articles

• Pre construction Interest

  Deduction for Pre-Construction Interest What is pre construction Interest? It is basically the interest paid on home loan while the residential house was “under construction”. Deduction as per section 24, Income tax Act says that the Interest paid ...

• Section 115BAC

  Section 115BAC Section 115BAC is the newly inserted section in the Income Tax Act, 1961 that deals with the new income tax regime. This section and alternate tax regime was introduced in Union Budget 2020 and is applicable to individuals and Hindu ...

• Guidance for Filing ITR-7 for Section 11 (Trust Registered u/s 12A/12AA)

  Guidance for Filing ITR-7 for Section 11 (Trust Registered u/s 12A/12AA) Charitable Institutions which are registered under section 12A/12AA   of the Act can claim exemptions under section 11 of the Act when conditions are become fulfilled. While ...

• 3CD annexure export Process - "Interest details paid u/s 201 (1A)/206C(7)"

  3CD annexure export Process - "Interest details paid u/s 201 (1A)/206C(7)"  This process helps the user to export/ import the 3CD details entered for a particular PAN in TDS Software to the Income Tax Software using an excel template format easily. ...

• Remuneration Maximum Permissible Limit

  Remuneration Maximum Permissible Limit Payment of remuneration to any partner who is a working partner, which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such ...