## Remuneration to Working Partners — Section 40(b)
A partnership firm can claim remuneration paid to its working partners as a deduction, but only up to a statutory ceiling computed on Book Profits.
### Computing Maximum Remuneration Allowed
| Particulars | Amount |
|---|---|
| A. Actual remuneration paid to working partners | XXXX |
| B. Maximum remuneration allowed: | |
| → On first ₹6,00,000 of Book Profits: higher of ₹3,00,000 or 90% of Book Profits | XXX |
| → On balance Book Profits: 60% | XXX |
| C. Deduction = Lower of A or B | XXXX |
Thumb-rule: A firm can always pay up to ₹3,00,000 and claim the deduction irrespective of whether there is book profit or loss. The slab limits only need to be tested once the remuneration exceeds ₹3,00,000.
### Taxability in the Partner's Hands — Section 28(v)
Interest and remuneration received by a partner is taxable under PGBP in the partner's hands only to the extent it was allowed as a deduction to the firm.
- If a firm pays ₹2,00,000 interest but only ₹1,00,000 is allowable under Section 40(b), then only ₹1,00,000 is taxable in the partner's hands.
### Conditions and Clarifications
- Authorised by deed: Interest and remuneration are deductible only if explicitly authorised by the partnership deed.
- Prospective only: Deduction is allowed only for payments relating to the period on or after the date of the deed — no deduction for payments before the deed date.
- Non-working partners: No deduction at all for remuneration to a non-working partner.
- TDS under Section 194T (w.e.f. 1.4.2025): TDS @ 10% applies on remuneration and interest paid by a firm to its partners if the sum exceeds ₹20,000.
- Share of profit exempt: The partner's share of the firm's profit is exempt under Section 10(2A).
- What is 'remuneration': Any salary, bonus, or commission (by whatever name called). Interest is NOT remuneration — do not club it.
- Working partner: An individual actively engaged in conducting the business/profession of the firm.