Tax Saving Tips u/s 40(b)
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.
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