For claiming deduction u/s 40(b) following conditions shall be fulfilled:-
- Payment should be made to working partner only
- Remuneration must be authorized by partnership deed
- It should not pertain to the period prior to partnership deed
- Remuneration should not exceed the permissible limit-
If the above conditions are satisfied, remuneration to partner is allowable as deduction in the hand of the firm. However the maximum amount of such payment to all the partners during the previous year should not exceed the limit given below –
Max permissible deduction in respect of remuneration to partner u/s 40(b)
If book profit is negative
If book profit is positive-
How to compute book profit:-
- Compute net profit of firm as per profit & loss a/c
- Make adjustment as provided by section 28 to 44DB
- Add remuneration to partner if debited to profit and loss a/c.
The resulting amount is book profit.