Official Partner Remuneration Calculator by Income Tax Dept

Introduction

The Income Tax Department of India provides an official Partner Remuneration Calculator to help partnership firms determine the allowable remuneration and interest payable to partners under Section 40(b) of the Income Tax Act, 1961.

With new limits introduced in Budget 2024, effective from April 1, 2025, it is essential for partnership firms to correctly calculate and claim remuneration to avoid tax disallowances and penalties.

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What is the Partner Remuneration Calculator?

The Partner Remuneration Calculator is an online tool developed by the Income Tax Department of India to help firms compute the maximum allowable remuneration payable to working partners. It simplifies the calculation by applying the statutory limits prescribed under Section 40(b) based on the firm’s book profit.

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Understanding Partner Remuneration and Its Tax Implications

What is Partner Remuneration?

Partner remuneration refers to salaries, bonuses, commissions, or other payments made to working partners for actively managing a firm’s operations.

Important:

• Only working partners are eligible for remuneration.
• The remuneration must be authorized by the partnership deed.
• Payments cannot exceed the prescribed limits set under Section 40(b).
• The remuneration cannot be for a period before the partnership deed is executed.

How is Remuneration to Partners Deducted?

Partnership firms treat partner remuneration as an expense and deduct it from taxable income. However, to prevent tax evasion, Section 40(b) limits the amount that can be deducted.

Key Conditions for Deductibility of Remuneration:

• Remuneration must be paid only to working partners.
• It must be authorized in the partnership deed.
• It must not relate to a period before the deed was executed.
• It must not exceed the prescribed limits under Section 40(b).

How to Use the Official Partner Remuneration Calculator?

The Partner Remuneration Calculator is a user-friendly tool that requires only basic financial data from a firm.

Step-by-Step Guide:

Step 1: Visit the Official Calculator

• Go to the Income Tax Department of India website.
• Click on the Partners Remuneration Calculator (Direct Link).

Step 2: Enter Financial Details

• Net Profit or Loss – Enter the net profit/loss from the firm’s Profit & Loss account.
• Book Profit Calculation – The tool automatically calculates book profit (net profit + partner remuneration).

Step 3: Apply Permissible Limits: The calculator applies the permissible remuneration limits under Section 40(b):

Until March 31, 2025 (Old Limits)

Book Profit	Maximum Allowable Remuneration
First Rs. 3,00,000 (or in case of loss)	Rs. 1,50,000 or 90% of book profit (whichever is higher)
On balance book profit	60% of book profit

From April 1, 2025 (New Limits – Budget 2024)

Book Profit	Maximum Allowable Remuneration
First Rs. 6,00,000 (or in case of loss)	Rs. 3,00,000 or 90% of book profit (whichever is higher)
On balance book profit	60% of book profit

Step 4: View Results

• The tool calculates the maximum allowable remuneration.
• Firms can adjust their remuneration payouts accordingly to ensure tax compliance.

Additional Deductions: Interest Paid to Partners

Apart from remuneration, interest paid to partners is also deductible, subject to conditions:

Condition	Requirement
Authorized by Partnership Deed	Interest must be explicitly mentioned in the deed.
Not for a Period Before Deed Execution	Interest cannot be paid for a period before the deed was signed.
Maximum Interest Rate	Cannot exceed 12% simple interest per annum.

Note: Compound interest is not allowed for deduction under Section 40(b).

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TDS on Partner Payments – Section 194T (Effective April 1, 2025)

Budget 2024 introduced Section 194T, which mandates TDS on partner payments, applicable from April 1, 2025.

Particulars	Details
Applicability	Firm / LLP
Payments Covered	Salary, remuneration, commission, bonus, and interest paid to partners
TDS Rate	- 10% (if PAN and Aadhaar linked) - 20% (if PAN and Aadhaar not linked)
Threshold for Non-Deduction	Rs. 20,000 per year
Time of Deduction	At payment or credit, whichever is earlier
Due Date for TDS Payment	7th of the following month
TDS Return Form	Form 26Q

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Common Mistakes to Avoid When Calculating Partner Remuneration

• Paying remuneration to non-working partners – Only working partners are eligible.
• Paying interest at more than 12% – Interest beyond this limit is disallowed.
• Not mentioning remuneration in the partnership deed – Unauthorized payments are not deductible.
• Claiming remuneration before the deed date – Payments for a prior period are not allowed.
• Exceeding the prescribed limits under Section 40(b) – The excess amount will not be deductible.

Conclusion

The Official Partner Remuneration Calculator is essential for partnership firms to calculate allowable deductions for partner remuneration and interest payments. Firms can optimize tax deductions, avoid penalties, and streamline tax planning by ensuring compliance with Section 40(b) and new tax provisions.

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