Tax Saving Tips u/s 40(b)

Section 40(b) places a restriction on firm on the payment of remuneration, interest, bonus, commission or interest to its partners.

In some cases it is not recommended to pay salary or interest to partners as it will ends up with the increment of tax burden on partners u/s 28(v).

Here are some events where a Firm should avoid giving interest or salary to its Partners:

1. Where the firm is entitled to deductions under Chapter VI-A, such as deduction under section 80IA, 80IB, 80IC etc. In such cases the profits of the firm will be deductible under the aforesaid section and if salaries etc. is paid to the partners, the same will be taxable in the hands of partners as a income from business and profession u/s 28(v).

2. Where presumptive taxation applies to the firm except sections 44AD and 44AE. The remuneration and interest to the partners are deductible from the deemed incomes referred in sections 44AD and 44AE.

3. Where the firm is entitled to deductions under section 10AA. (Deductions Section 10A and 10B are not available from the assessment year 2013-14)

4, Where the firm has brought forward losses and this is the last year of set off and profits of the firm, but after paying salaries and interest the profit is not sufficient or is less to absorb the losses



About Sudheer Paidi

I am a student studying chartered accountancy course started this blog for helping CA students

Posted on February 24, 2013, in Articles and tagged , , , , . Bookmark the permalink. Leave a comment.

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