M/s Joshi Ranga & Sons, a partnership firm consisting of two partners, reports a net profit of ₹12,25,000 for the financial year 2024-25, before deduction of the following items: Salary of ₹32,000 each per month paya

CS Professional · Advanced Direct Tax Laws and Practice · PYQS · December 2025
M/s Joshi Ranga & Sons, a partnership firm consisting of two partners, reports a net profit of ₹12,25,000 for the financial year 2024-25, before deduction of the following items: Salary of ₹32,000 each per month payable to two working partners of the firm (as authorized by the deed of partnership) Depreciation on plant and machinery under section 32 is ₹1,75,000 Interest on capital @ 15% per annum (as per the deed of partnership). The amount of capital eligible for interest is ₹6,00,000 each for both partners. Carry forward of business loss of P.Y. 2023-24 - ₹85,000. In this background, you are requested to answer the following: (ii) Compute the amount of allowed salary that can be paid to working partners as per section 40(b) of the Income Tax Act, 1961.

Answer & Explanation:

Computation of Allowed Remuneration to partner for A.Y. 2025-26 Particulars Amount (₹) Amount (₹) A. Actual Remuneration Given to Partners (32,000 x 2 x 12) 7,68,000 B. Maximum permissible under section 40(b)(v): Book Profit upto first 6,00,000 @ 90% (6,00,000 x 90%) 5,40,000 Remaining Book Profit @ 60% {(9,06,000 - 6,00,000) x 60%} 1,83,600 Maximum permissible remuneration [B] 7,23,600 Allowed remuneration u/s 40(b)(v) is lower of A or B 7,23,600

Topics: Taxation of Partnership Firms

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