BooksIQA firm can deduct partner remuneration (salary / bonus / commission) only up to the §40(b) ceiling: ₹3,00,000 OR 90% of book-profit on the first ₹6,00,000, then 60% on the balance (revised by Finance Act 2024).
Key points
- This ceiling applies to partnership firms (including LLPs) computing PGBP.
- Four conditions must ALL be met for the deduction to be allowed: (i) the partner is a 'working partner' as per the deed;
- (ii) the remuneration is authorised by and in accordance with the partnership deed;
- (iii) it relates to a period AFTER the partnership deed authorises it;
- and (iv) it does not exceed the aggregate ceiling.
- From FY 2025-26 onwards (after Finance Act 2024), the ceiling is: on the first ₹6,00,000 of book-profit (or where there is a loss), ₹3,00,000 OR 90% of book-profit, whichever is HIGHER;
- on the balance book-profit, 60%.
- The earlier ceiling (up to FY 2024-25) was: first ₹3,00,000 or loss → ₹1,50,000 / 90% higher;; balance → 60%.
- Separately, interest paid to a partner is capped at 12% per annum simple interest under §40(b)(iv).
Reference: §40(b), ITA 1961 (renumbered §35(e) under ITA 2025)
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