Prepared By - : ANKIT VYAS KINJAL VYAS BINAL MEHTA JAGRUTI JAIN

bonus. y Section 40 of the Income Tax Act. . salary. 1961.Introduction . bonus. 1961 opens with the nonobstante clause and directs that outgoings such as interest. commission or remuneration specifically enumerated in cl. (b) shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession". commission or remuneration paid by the firm to the partner. as it stood at the relevant time. prohibited deduction of interest. salary.: y Section 40(b) of the Income Tax Act.

full amount of salary is not allowed as expenses in profit & loss account but salary is restricted to % of profit before salary to the partner. Deduction for any amount paid by way of salary. whichever is less.: As per Income Tax Act . There are some conditions also which are to be complied to claim deduction of salary as expense in P & L account of partnership firm.Partner s Remuneration . . bonus. commission or remuneration by a firm to the partners is allowable in the computation of income of the firm. Deductible amount shall be the amount as per the partnership deed or amount calculated under Sec.40(b).

4.: Salary should be paid to working partner. Salary must be written/authorised by the Partnership deed 3. 1. . 2. Salary must be with in limit of % of Book profit.Conditions are defined in section 40(b) of the income tax act . Salary should be related to the period after the partnership deed date.

The board have given some clarification regarding disallowance of remuneration paid to the working partners as provided under section 40(b) of income tax act. These are : (i) The partners have agreed that the remuneration to a working partner will be the amount of remuneration allowable under the provisions of section 40(b)(v) of the Income-tax Act. . and (ii) The amount of remuneration to working partner will be as may be mutually agreed upon between partners at the end of the year.

Prescribed limits for deduction in partnership as per I.Sec40(b) : PROFESSIONAL FIRMS OTHER FIRMS REMUNERATION AS A % OF BOOK PROFITS BOOK PROFITS On the first Rs 100000 of the book profit or incase of a loss On the next Rs 100000 of the book profit On the first Rs 75000 of the Rs 50000 or 90% whichever book profit or in case of a is more loss On the next Rs 75000 of the book profit 60% On the balance of the book On the balance the book profit profit 40% .T.

Book profit means net profit as per the profit and loss account for the previous year.Example : suppose y y y y Profit as per P & L = 220850 Depreciation =111474.00 Net profit after depreciation =109376 salary of partner given =108000 y Now salary allowed as per section 40(b) is given below Book profit=109376 y Here. .

On first 100000=90% of 100000=90000 On balance 9376 @ 60%=5626 Total allowed=90000+5626=95626 .y If firm is covered under 44AA(profession prescribed): Book profit=109376 1. 3. 2.

2. 3. On first 75000=90% of 75000 among 109376=67500 On (109376-75000=34376) @ 60%=20986 Total allowed :67500+20986=88486 .y if firm is not covered under above: any other firm Book profit=109376 1.

A business may have other goals but if they do not make profit in the business then they will have to end the business. Gross profit is not the actual profit of a business and it is found by deducting the cost of goods sold from net sales. Thus. There are two types of profit namely gross profit and net profit. . In most cases the main goal of a business is making profit. What is business profit? The easiest way to explain profit is the income a company earned in a certain period of time. net profit is considered as the actual profit retained by a business and it is actually the difference between the revenue earned by the company and the expenses incurred.Business Profit: It is clear that every business operate in order to earn profit.

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