Understanding the Limits of Section 40(b) in the Indian Income Tax Act

Explore the limits of remuneration deductions under Section 40(b) of the Income Tax Act for partnership firms in India.

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Under Section 40(b) of the Indian Income Tax Act, remuneration paid to partners in a partnership firm is subject to certain limits for tax deductibility. These limits depend on the book profits of the firm. For example, the deduction limit for remuneration is restricted to 90% of the first Rs 3 lakhs of book profit and 60% of the balance above Rs 3 lakhs. Make sure to consult a tax advisor for detailed calculations.

FAQs & Answers

  1. What is Section 40(b) of the Indian Income Tax Act? Section 40(b) of the Indian Income Tax Act specifies the limits on the remuneration payable to partners in a partnership firm for tax deductibility. These limits are based on the book profits of the firm.
  2. How is the deduction limit for partners' remuneration calculated? The deduction limit is calculated as 90% of the first Rs 3 lakhs of book profits and 60% of any book profits above Rs 3 lakhs.
  3. Can I deduct the full remuneration paid to partners? No, you cannot deduct the full remuneration paid. The deduction is capped based on the limits set in Section 40(b) of the Income Tax Act.
  4. Should I consult a tax advisor for calculating deductions? Yes, it’s advisable to consult a tax advisor for detailed calculations and to ensure compliance with tax regulations.

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