Question 1:      Whether Remuneration to Partner (Partner’s Salary) will be allowed in case of Partnership Firm?

Answer:              Yes, it is allowed only to a Working Partner. Remuneration will be allowed to an Individual Only.

Working Partner Meaning: Working Partner is an active partner who takes an active part in the running of a business.

Question 2:      Whether partnership firm can give remuneration retrospectively?

Answer:              Partnership Firm can’t give remuneration retrospectively to a working partner.

Example: ABC Partnership firm has been created dt. 01.01.2020. There are 4 partners in the firm. A partnership deed has been created dt. 01.02.2020 which specify the manner of Partners’s remuneration. ABC want to give partner’s remuneration from 01.01.2020 but it is not possible because partnership firm can’t give remuneration retrospectively i.e it can give remuneration from 01.02.2020.

Question 3:      Whether Partnership firm can give remuneration to HUF, Other Partnership Firm?

Answer:              Partnership Firm can give remuneration to an Individual only.

Example: XYZ is a Partnership Firm. There are four partner Mr. B who is an active partner, Mr. C (Partner on behalf of Karta), Mr. D & Mr. E who is non-working partner. In this case Partnership Firm can give remuneration to Mr. B only.

Question 4:      What is the maximum amount of remuneration allowable to a working partner?

Answer:              As per Section 40(b) maximum amount allowable to a partner is as under:

1On the First Rs. 3,00,000 of Book ProfitRs. 1,50,000 or at the rate of 90% of the Book Profit ,whichever is more
2On the balance of Book Profits.At the rate of 60%

Example: Book Profit of Partnership Firm is Rs. 10,00,000. Then maximum amount of remuneration in this case is as under:

On the First Rs. 3,00,000Rs. 1,50,000 or Rs. 2,70,000 (Rs. 3,00,000 X 90% = 2,70,000
on Balance Rs. 7,00,000Rs. 4,20,00 (Rs. 7,00,000 X 60%)

The total allowable remuneration is Rs. 6,90,000 (2,70,000+4,20,000). It means firm can give maximum amount of remuneration to its working partners is Rs. 6,90,000. If firm pay more than Rs. 6,90,000 then it will be disallowable in the hands of Firm.

Question 5:      What are the other conditions related to partner’s remuneration?

Answer:              The other conditions are as follows:

Partnership Deed either specify the amount of remuneration payable to each partner or lay down the manner of quantification of remuneration to each partner.

Question 6:      Whether Interest will be allowable in case of Partnership Firm?

Answer:              Yes it is allowable but rate of interest should be specified in the partnership deed. The Rate of Interest should not exceed from 12% per annum simple interest.

Example: Book Profit of Firm is Rs. 5,00,000. Interest has been given by Firm is Rs. 80,000. Interest will be allowed Rs. 60,000(Rs. 5,00,000 x 12%). Rs. 20,000 (Rs. 80,000-Rs. 60,000) will be disallowed in the hands of Firm.

Question 7:      Whether Interest will be allowed to any partner or not?

Answer:              Yes, Interest will be allowed to any partner whether it is working or not working.

Question 8:      Whether Interest can be given retrospectively in case of Partnership Firm?

Answer:              Firm can’t give Interest to partners retrospectively.

Example: ABC Partnership firm has been created dt. 01.01.2020. There are 4 partners in the firm. A partnership deed has been created dt. 01.02.2020 which specify the Interest Rate @12%. ABC want to give Interest to partners from 01.01.2020 but it is not possible because partnership firm can’t give Interest retrospectively i.e it can give Interest from 01.02.2020.

Question 9:      What is the Book Profit?

Answer:               Following adjustments should be made to the Net Profit under PGBP for Computation of Book Profit:

Particulars

Income from PGBP (Only)

Add: (a)Extra Interest Paid to Partners i.e more than 12%.

          (b) Remuneration Paid to Partners.

Less: (a) Current Year Depreciaton

            (b) Brought Forward Depreciaton

Question 10:    What are the treatment in case of losses & unabsorbed depreciation?

Answer:              It can be carried forward by a firm only.

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