A free Section 40(b) partner remuneration calculator for FY 2025-26 that applies the revised Finance Act 2024 slabs to show your firm's maximum deductible remuneration and any disallowed excess, instantly and without data storage.
Calculate maximum deductible partner remuneration under Section 40(b) for FY 2025-26 with the new ₹6 lakh slab, 60% rate & disallowance check. Free & instant.
Section 40(b) of the Income Tax Act, 1961 sets a ceiling on how much salary, bonus, and commission a partnership firm or LLP can deduct for its working partners. Pay more than the ceiling and the excess doesn't disappear, it just stops being deductible and gets added straight back to the firm's taxable income.
This calculator works out that ceiling for FY 2025-26 using the revised limits from the Finance (No. 2) Act, 2024, in effect from 1 April 2025 (AY 2025-26 onward). If you want the full picture of how a firm gets taxed beyond just this deduction, the Partnership Firm Tax India guide covers the 30% flat rate, ITR-5 deadlines, and GST rules alongside Section 40(b).
Enter your firm's book profit, and you'll get a slab-wise breakdown of the maximum deductible remuneration, along with the disallowed excess if you've entered what was actually paid. It works for both partnership firms and LLPs, runs entirely in your browser, and doesn't store anything you type in.
Under Section 40(b), the deduction a firm can claim for partner remuneration isn't open-ended. It's tied to the firm's book profit through a formula, and anything paid above that formula's output is disallowed. This calculator applies the Section 40(b)(v) limits as amended by Act No. 15 of 2024, so whether your book profit is ₹2 lakh or ₹2 crore, you get the exact ceiling instantly rather than working through the slabs by hand. It also touches on Section 194T, the separate TDS rule that catches a lot of firms off guard in year one, a Section 194T TDS threshold calculator is worth running alongside this one.
For the statutory wording itself, the Income Tax Department's Section 40 page has the full text with the amendment footnotes.
The Finance Act doubled the first-slab threshold and raised the minimum floor, both effective from 1 April 2025. One thing that catches people out: this ceiling is the combined limit for every working partner together, not a separate number per partner.
| Book Profit Scenario | Old Limit (up to FY 2023-24) | New Limit (FY 2025-26 onward) |
|---|---|---|
| Loss or Book Profit ≤ ₹3,00,000 | ₹1,50,000 or 90% of book profit, whichever is higher | ₹3,00,000 flat floor |
| Book Profit ≤ ₹6,00,000 | ₹1,50,000 or 90% of book profit, whichever is higher | ₹3,00,000 or 90% of book profit, whichever is higher |
| Book Profit > ₹6,00,000 | 90% on the first ₹3,00,000, plus 50% on the balance | 90% on the first ₹6,00,000 (₹5,40,000), plus 60% on the balance |
A few quick checks to see how this plays out:
This is the step that trips up more firms than any other. Book profit under Explanation 3 to Section 40(b) isn't the net profit sitting in your P&L account. You have to add back any remuneration already paid to working partners that was debited to that account.
Book Profit = Net Profit (per P&L) + Partner Remuneration charged to P&L ± other required income-tax adjustments.
Get this number confirmed with your CA before you plug it into the ceiling. An understated book profit gives you a lower ceiling than you're actually entitled to.
Again, this result is the aggregate ceiling for all working partners combined.
Enter the total remuneration paid to all working partners for the year, and the calculator checks it against the allowed limit. If actual spending is at or under the limit, it's fully deductible. If it's over, the excess is disallowed and added back to taxable income.
The output gives you the Maximum Allowable Deduction, the Deductible Amount, the Disallowed Excess (if there is one), and the full slab-wise workings. It's useful to keep on file for ITR-5 preparation, audit documentation, or year-end compensation planning.
Still running the old numbers. Anyone still applying the pre-2025 first slab of ₹3,00,000 and the 50% balance rate is computing a ceiling that's too low, which means real deductions going unclaimed.
Messing up the two-slab split. The formula splits at ₹6,00,000. Applying a flat 90% or a flat 60% across the whole book profit gives the wrong number for any firm above that threshold, and it's an easy mistake to make when you're doing it manually.
Confusing book profit with net profit. Skip the Explanation 3 add-back and your book profit comes in lower than it should, which drags the ceiling down with it.
Treating it as per-partner instead of aggregate. Three working partners don't mean three separate ceilings. It's one number for the whole firm to work with.
Lumping profit share in with remuneration. Profit shares are distributions, not deductible expenses, and Section 40(b) has nothing to do with them. Only salary, bonus, and commission count. Mixing the two inflates the remuneration figure and invites disallowance.
A deed that never got updated. If your partnership deed still caps remuneration at the old ₹1,50,000 floor or the old ₹3,00,000 first slab, you may need a supplementary addendum before you can actually claim at the new, higher ceiling. Without deed authorization, the deduction gets disallowed regardless of what the statutory limit says.
All four have to hold at once. Miss any one of them and the remuneration gets disallowed, even if it's within the rupee ceiling.
Authorized in the partnership deed. The deed has to specify either the quantum or the method of computing remuneration, explicitly. A verbal understanding among partners won't hold up. Worth reviewing your deed after the Finance Act 2024 changes to make sure the clause isn't still anchored to the old numbers.
Paid only to working partners. Explanation 4 to Section 40(b) defines who counts as a working partner: someone actively engaged in running the business. Sleeping partners, inactive partners, or capital-only partners don't qualify, and anything paid to them is disallowed outright under Section 40(b)(i).
Within the aggregate ceiling. Go over the limit worked out from book profit, and the excess is disallowed for the firm, added back to taxable income. It's worth noting the disallowed amount is still taxable in the partner's hands, so it doesn't just vanish either way.
Only for the period after the deed's date. Remuneration is only deductible from the date of the deed authorizing it. Payments for any period before the deed existed aren't deductible under Section 40(b)(iii), even if the deed gets executed later.
There's a separate rule worth knowing alongside this: interest on partner capital under Section 40(b)(iv) is deductible up to 12% per annum simple interest, again only if the deed authorizes it. It's a completely independent cap from the remuneration slabs, so check it separately with your CA if your deed also involves capital interest.
Small firm, book profit ₹2,50,000. 90% of that comes to ₹2,25,000, which is under the ₹3,00,000 floor. Allowed: ₹3,00,000, the floor applies. This floor is what keeps small and early-stage firms from being penalized even when the percentage math gives a lower number.
Mid-size partnership, book profit ₹15,00,000. First ₹6,00,000 at 90% gives ₹5,40,000. The remaining ₹9,00,000 at 60% gives another ₹5,40,000. Allowed: ₹10,80,000. If the firm actually paid out ₹12,00,000 to its partners, ₹1,20,000 of that gets disallowed and added back at the firm's 30% tax rate. If that disallowance pushes your advance tax short for the year, a Section 234B and 234C interest calculator will show what that shortfall actually costs.
LLP with three working partners, book profit ₹50,00,000. First ₹6,00,000 at 90% gives ₹5,40,000. The remaining ₹44,00,000 at 60% gives ₹26,40,000. Allowed (aggregate): ₹31,80,000. That's the combined limit for all three partners, and it's up to the firm to decide how it's split between them, in line with the deed. Section 194T TDS at 10% also kicks in on each partner's payment once it crosses ₹20,000.
Loss-making firm, book profit minus ₹2,00,000. Negative book profit means the percentage calculation doesn't apply at all. Allowed: ₹3,00,000, the minimum floor. That floor was doubled from ₹1,50,000 by the Finance Act 2024, which is real relief for firms going through a rough year.
Partnership firms, registered or not, governed by the Indian Partnership Act, 1932. Work out the aggregate deductible remuneration before finalizing accounts and filing ITR-5 on the official income tax portal.
LLPs under the LLP Act, 2008, which are treated as "firms" for income tax purposes and face the same Section 40(b) structure. LLPs also have to handle Section 194T from 1 April 2025. The LLP Agreement plays the same role a partnership deed plays for Section 40(b) purposes.
CAs and tax professionals preparing ITR-5, running tax audits under Form 3CA-3CD (Section 44AB), or advising clients on how to structure partner compensation. Not sure whether a client's firm even crosses the audit threshold this year? A Section 44AB tax audit applicability checker settles that before you go further.
Partners planning year-end compensation, deciding how much to draw before the books close on 31 March. Running the numbers ahead of time avoids an unpleasant disallowance surprise at filing.
Internal audit and compliance teams tracking cumulative remuneration against the projected limit through the year, especially since Section 194T now means TDS needs monthly attention too, not just a year-end reconciliation.
Firms under scrutiny or assessment, responding to a Section 143(3) notice or a Section 148 reopening where the Assessing Officer has questioned the remuneration claimed. A documented, formula-based calculation is useful evidence to have ready.
Explanation 3 to Section 40(b) defines book profit as the net profit shown in the firm's P&L account for the year, computed under Chapter IV-D (Profits and Gains of Business or Profession), after adding back any remuneration to working partners that was already debited to that account.
Book Profit = Net Profit as per P&L account + Partner remuneration charged to P&L + Business losses brought forward and debited to P&L (if any) − Income from other heads credited to P&L (± other adjustments required under Chapter IV-D)
These get confused constantly, and they're treated very differently:
Your partnership deed should keep the remuneration clause and the profit-sharing clause clearly separate. Blending them is a common way legitimate deductions end up disallowed.
Section 194T, introduced by the Finance (No. 2) Act, 2024, requires every partnership firm and LLP to deduct TDS at 10% once aggregate payments to any single partner, whether salary, remuneration, bonus, commission, or interest on capital, cross ₹20,000 in a financial year. TDS has to be deducted at the time of credit or payment, whichever comes first. If the partner hasn't furnished PAN or Aadhaar, the rate jumps to 20%.
A few things worth keeping in mind for FY 2025-26:
Section 194T sits alongside Section 40(b), not inside it. A firm has to comply with both independently.
Everything runs client-side, in your browser's JavaScript engine. Nothing gets sent to a server, saved, or logged. Your book profit and remuneration figures exist only in your browser tab and disappear when you close it. The site uses HTTPS, doesn't use tracking cookies on your inputs, and once the page has loaded, the calculator works even offline.
This tool is built on the Income Tax Act, 1961 as amended by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024). The revised Section 40(b)(v) figures, a ₹6,00,000 first-slab threshold, a ₹3,00,000 minimum floor, and a 60% balance rate, apply for Assessment Year 2025-26 onward, per the amendment gazette dated July 2024. Section 194T obligations effective 1 April 2025 are explained here but calculated separately.
What this tool can't do:
Checklist before you file ITR-5:
A handful of things that don't come up in the formula itself but matter in practice:
Section 40(b) sets the maximum remuneration a partnership firm or LLP can deduct when computing its profits and gains from business or profession. It caps deductions for salary, bonus, and commission paid to working partners, and anything beyond the ceiling is disallowed and added back to taxable income. The limits were revised by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024), effective from 1 April 2025 (AY 2025-26 onward).
Three things, all effective 1 April 2025: the first-slab threshold doubled from ₹3,00,000 to ₹6,00,000, the minimum floor rose from ₹1,50,000 to ₹3,00,000, and the balance-slab rate went from 50% to 60%. The official gazette notification has the exact clause. These changes help mid-to-large firms most, since the higher balance rate and larger first slab meaningfully increase the allowable deduction once book profit is above ₹6,00,000.
Under Explanation 3, book profit is the net profit as per the firm's P&L account, computed under Chapter IV-D, after adding back any remuneration to working partners already debited to that account. In short: Book Profit = Net Profit (per P&L) + Partner Remuneration charged to P&L, plus or minus other required IT adjustments. It's not the same as net profit or taxable profit, so it's worth confirming the exact figure with your CA before applying the ceiling.
Salary, bonus, and commission paid to working partners, taxable as PGBP income in the partner's hands under ITR-3. It doesn't cover profit sharing, which is a distribution of earnings, not an expense, and stays exempt under Section 10(2A). Four conditions have to hold for remuneration itself: it's authorized in the deed with the quantum or method stated, it's paid to a working partner actively managing the business, it relates to a period on or after the deed's date, and it stays within the aggregate ceiling.
The excess is disallowed. The firm can't deduct it, and it gets added back to taxable income at the firm's 30% rate. That disallowed amount is still taxable for the partner receiving it, it doesn't become tax-free just because the firm couldn't deduct it. For example, if the limit is ₹10,00,000 but partners collectively received ₹12,00,000, ₹2,00,000 gets disallowed for the firm while remaining fully taxable for the partners.
It's a bit nuanced. Traditional partnership firms clearly fall under Section 40(b), but for LLPs, professional opinion is divided. Many tax practitioners apply the same book-profit-based limits to LLPs assessed as firms, while others point out that LLPs are governed separately under the LLP Act and may not technically be "firms" for Section 40(b) purposes.
What's not in doubt is Section 194T, which applies explicitly to both partnership firms and LLPs from 1 April 2025. Check with a qualified CA on the filing position for your specific LLP structure.
Section 194T requires firms and LLPs to deduct 10% TDS once aggregate payments to any partner, salary, bonus, commission, remuneration, or capital interest, cross ₹20,000 in a financial year. It's a separate compliance requirement from Section 40(b). TDS applies even on remuneration that might later be disallowed under Section 40(b), which can create a mismatch between the partner's Form 26AS and their actual taxable income.
Most partnership firms and LLPs file ITR-5 for FY 2025-26 (AY 2026-27). ITR-4 (Sugam) only applies to small non-LLP firms opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE, with income up to ₹50 lakhs, run it through the ITR form selector if you're not sure which applies. For audited firms, the ITR-5 due date is 31 October 2026; for non-audited firms, it's 31 July 2026.
Yes. As explained above, every calculation happens locally in your browser tab, and nothing you type is transmitted, stored, or logged anywhere on our end.
Calculations verified by our team including CA Anita Patil. View our full accuracy policy and meet the team →
For informational purposes only. Results are estimates based on the inputs you provide and the rules in effect for the period shown, and are not tax, legal or financial advice. Verify figures against the relevant official source and consult a qualified professional before acting on them. Accuracy & limitations
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