Conditions regarding allow ability of interest on partner’s capital (Sec.40 (b))

1. Conditions:

1. The payment should be authorized by the partnership deed.
2. It should be for the period falling after the date of partnership deed.

2. Exception: The above condition does not apply in the following situations-

1. Where an individual is a partner on behalf of or for the benefit of any other person, and interest is paid by the firm to the individual otherwise than as partner in a representative capacity.
2. Where an individual is a partner in his individual capacity and interest is received by such individual from the firm on behalf of or for the benefit of any other person.

3. Admissible deduction: The maximum rate of interest allowable is 12% p.a. at simple rate of interest.

Conditions regarding payment of remuneration to partner (Sec.40 (b))

1. Conditions: Any salary or bonus or commission or remuneration paid by the firm to a partner is allowable as deduction subject to the following conditions:

1. The payment should be authorized by the partnership deed.
2. It should be for the period falling after the date of the partnership deed.
3. It should be paid to a working partner.

2. Working partner means an individual who is a partner of the firm and is actively engaged in conducting the affairs of the business or profession of the firm.

3. Book Profits:

1. The maximum permissible remuneration is derived on the basis of book profit of the firm.
2. In the computation of book profit, any income from any other head or brought forward losses or deduction under chapter VIA shall not be considered.

4. Computation of income of the firm:

5. Maximum Permissible Remuneration: