Maximum Limit of Interest and Remuneration to Partners under Section 40(b)
Firms can claim deduction of Interest & Remuneration paid to Partners while computation of Profits & Gains from Business & Profession. However, there is ceiling limit on maximum amount of Interest & Remuneration paid under Section 40(b).
Conditions for claiming deduction of Remuneration paid to Partners
Maximum Permissible Limit:
|On the first Rs. 300000 of Book Profit or in case of Loss||Rs. 1,50,000 or 90% of Book Profits whichever is higher|
|On the Balance Book Profit||60% of Book Profits|
Calculation of Book Profits:
|A) Income from PGBP as calculated||XXXX|
|B) Add: Interest/Remuneration Paid/Payable (If considered in Point A)||(XXXX)|
|C) Less: Interest under Section 40(b)||(XXXX)|
Conditions for claiming deduction of Interest paid to Partners:
Lets take an simple Example
|Income from PGBP||8,00,000|
|Remuneration to Partners||4,00,000|
|Interest Paid@ 15%||3,50,000|
Calculation of Book Profit.
Add: Interest Paid @15%
|Less: Interest @12% (Allowable)||2,80,000|
|On First 3,00,000||1,50,000 or 90% of 3,00,000 i.e 2,70,000 whichever is higher
|On Balance 5,28,000 (9,70,000-3,00,000) @60%||4,02,000|
Disallowance under Section 40(b) in our Example is as follows:
As the Remuneration paid Rs.4,00,000 is well within the limit as specifies under 40(b) i.e 6,72,000.