Partners Salary for Income Tax Purpose

[Ashoka G]

Sir/Madam,

If a partnership firm pays salary to partners and pays Income Tax under Presumptive Scheme. Here the deduction claimed by the partner is claimed only on 8% of Income computed This salary deduction claimed is as per section 40(b) of the Income Tax Act. Partners were claiming Salary equally. Assumed figures were given below-

Total Income - ₹ 90,00,000/-

Actual Salary claimed by partners - ₹ 10,00,000/-

Assumed Income under Section 44AD - 7,20,000/-

Salary deductions claimed (300000*90/100+420000*60/100) - ₹ 5,22,000/-

Income Tax paid (720000-522000*30/100) = ₹ 1,98,000/-*30/100 = ₹ 59,400/-

Here my doubt is whether the partner needs to pay Income Tax under his own capacity on actual deduction claimed by each partner (i,e, ₹ 2,61,000/-) or on actual salary paid to partners after the value of tax paid under Presumptive Taxation scheme by Partnership Firm ₹ 4,01,000/- (i.e. (Rs.10,00,000-Rs.1,98,000)/2).

AI Summary

Partners' salary taxation: whether partners are taxed on deduction allowed or on salary net of firm's presumptive tax A partnership firm pays partners remuneration but computes tax under the presumptive taxation regime and is allowed only a limited deduction for partner remuneration in computing firm income. The document contrasts the actual salary paid to partners with the deduction the firm can claim under partner-remuneration rules and the firm's presumptive tax liability, and asks whether partners are taxable on the full salary received, on the amount the firm was allowed to deduct, or on salary reduced by the firm's presumptive tax payment.