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Partners' Remuneration under Section 40(b)

Work out the maximum remuneration a partnership firm can deduct for its working partners, on its book profit, under section 40(b) — and how much of what it paid is allowed.

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For guidance only — not tax advice. Every figure is drawn from BharatX’s verified rule book, with the sections and rules shown alongside it.

Partners' remuneration: how it works and FAQs

FY 2025-26 (Income-tax Act 1961) and FY 2026-27 (Income-tax Act 2025) · Updated

How it works

A partnership firm can deduct remuneration paid to its working partners only up to a limit set by section 40(b): on the first ₹6,00,000 of book profit, ₹3,00,000 or 90% of book profit whichever is more, plus 60% of the balance.

A partnership firm can deduct remuneration paid to its working partners only up to a limit set by section 40(b): on the first ₹6,00,000 of book profit, ₹3,00,000 or 90% of book profit whichever is more, plus 60% of the balance. Book profit is the firm's profit before remuneration, after partners' interest and depreciation. Remuneration paid above the limit is disallowed.

  1. Work out book profit = profit before interest, depreciation and remuneration, minus interest paid to partners and depreciation.
  2. Maximum remuneration = ₹3,00,000 or 90% of the first ₹6,00,000 of book profit, whichever is more (₹3,00,000 if there is a loss).
  3. Add 60% of book profit above ₹6,00,000.
  4. Only remuneration up to this limit is deductible; anything paid above it is added back. It must also be authorised by the partnership deed.

Worked example

The firm can deduct ₹7,80,000; ₹1,20,000 of the remuneration is disallowed.

A firm has a book profit of ₹10,00,000 and pays its partners ₹9,00,000 of remuneration during the year.

  1. First ₹6,00,000: 90% = ₹5,40,000.
  2. Balance ₹4,00,000: 60% = ₹2,40,000.
  3. Maximum deductible = ₹7,80,000.
  4. Paid ₹9,00,000, so ₹1,20,000 is disallowed.

The firm can deduct ₹7,80,000; ₹1,20,000 of the remuneration is disallowed.

Frequently asked questions

What is the maximum remuneration a firm can pay its partners?

On book profit, ₹3,00,000 or 90% of the first ₹6,00,000 (whichever is more), plus 60% of the balance, under section 40(b). Remuneration above this is disallowed.

What is book profit for section 40(b)?

The firm's profit computed under the business head before deducting partner remuneration — that is, profit before interest, depreciation and remuneration, less interest paid to partners and depreciation.

What is the limit if the firm has a loss?

If book profit is nil or negative, the maximum deductible remuneration is ₹3,00,000.

Does the remuneration need to be in the partnership deed?

Yes. Remuneration is deductible only if it is authorised by, and in accordance with, the partnership deed and paid to working partners.

Every figure the calculator shows lists the sections it relies on under “Legal basis”. For guidance only — not tax advice.