ABC & Co. is a partnership firm consisting of four partners. The partnership deed provides for remuneration of ₹ 4,00,000 to partners and interest to partners at 12%. Profit for the year ended 31st March, 2019 is ₹ 1

Computation of book profit for AY 2019-20 and remuneration allowed under section 40(b) of Income-Tax Act, 1961 Particulars Amount (₹) Amount (₹) Net Profit as per Profit and Loss Account 1,00,000 Add: Remuneration to Partners 4,00,000 Add: Municipal Tax of House Property 5,000 4,05,000 Total 5,05,000 Less: Rent received on House Property (50,000) Book Profit as per section 40(b) 4,55,000 Remuneration allowed is lower of the amount as per partnership deed (₹ 4,00,000) or amount actually paid (₹ 4,00,000) or the amount computed as under: Maximum amount deductible on account of payment of remuneration to partners Particulars Amount First ₹ 300000 @ 90% 2,70,000 Balance of ₹ 155000 @ 60% 93,000 Total 3,63,000 Lower of above i.e. ₹ 363000 is the maximum remuneration permissible u/s 40(b).