Section 40(b) Partner Remuneration Revised Limit Calculator (FY 2025–26)

Partner remuneration taxation under Section 40(b) confuses many partnership firm managers and chartered accountants for several important reasons:

Changing Regulatory Framework: Section 40(b) rules have been updated multiple times, and the Finance Act 2025 introduced revised limits that differ from previous years. Many firms still reference outdated limits or rules. Confusion arises when old and new rules are mixed, leading to incorrect deduction claims.

Complex Calculation Formula: Unlike simple percentage deductions, Section 40(b) works on a tiered structure. For book profit exceeding ₹6,00,000, you must calculate 90% on the first slab and 60% on the remaining portion separately. This dual-rate calculation creates confusion when done manually, often resulting in errors that attract tax notices.

Book Profit vs. Net Profit Confusion: Many firms confuse "book profit" (as per Schedule VI of Companies Act) with net profit or taxable profit. Book profit has specific adjustment rules, and miscalculation here cascades into incorrect remuneration limits. Understanding what qualifies as book profit is critical.

Mixing Remuneration with Profit Sharing: Partnership deeds often authorize both remuneration (salary, bonus, commission) and profit sharing for partners. Incorrectly clubbing these two different categories leads to disallowance of legitimate deductions. The Section 40(b) partner remuneration revised limit calculator helps clarify this distinction.

Disallowance Consequences: Excess remuneration beyond the Section 40(b) limit cannot be deducted by the firm. This disallowance increases taxable income, raises tax liability, and can trigger additional scrutiny. Many firms don't realize this until an audit, making proactive calculation essential.

The Section 40(b) partner remuneration revised limit calculator follows official Income Tax Act, 1961 rules with the Finance Act 2025 amendments for FY 2025–26.

Step 1: Determine Book Profit Book profit is the starting point. It's calculated from the profit and loss statement after adjustments as per Schedule VI of the Companies Act and Income Tax Rules. Common adjustments include adding back depreciation, entertainment expenses, donations (if applicable), and other non-deductible items. This calculator requires you to input the final book profit figure.

Step 2: Apply Revised Section 40(b) Limits (FY 2025–26) The Finance Act 2025 introduced a tiered structure based on book profit amount:

For Book Profit ≤ ₹6,00,000: Maximum deductible remuneration = Greater of ₹3,00,000 OR 90% of book profit. This means even if your firm's book profit is ₹2,00,000 (90% = ₹1,80,000), you can still deduct ₹3,00,000. Conversely, if book profit is ₹4,00,000 (90% = ₹3,60,000), you can deduct ₹3,60,000.

For Book Profit > ₹6,00,000: The calculation splits into two slabs: • First ₹6,00,000 @ 90% = ₹5,40,000 (fixed regardless of book profit) • Remaining amount (book profit minus ₹6,00,000) @ 60%

Example: If book profit is ₹10,00,000, the calculation is: First ₹6,00,000 @ 90% = ₹5,40,000 Remaining ₹4,00,000 @ 60% = ₹2,40,000 Total allowed = ₹7,80,000

Step 3: Compare with Actual Remuneration Paid (Optional) If partners received remuneration during the year, the calculator compares it with the allowed limit. If actual remuneration ≤ allowed limit, it's fully deductible. If actual > allowed, the excess is disallowed and added back to firm's income.

Step 4: View Calculation Breakdown The calculator displays the tier-wise breakdown showing exactly how much is allocated to each slab and the total allowed limit. This transparency helps in audit defense.

• ✓Authorization in Partnership Deed: Remuneration must be explicitly mentioned and authorized in the partnership deed. Without deed authorization, even if remuneration is paid, it cannot be deducted.
• ✓Paid to Working Partners Only: Only remuneration paid to working partners (those actively engaged in the firm's business) is deductible. Sleeping partners typically don't qualify unless the deed specifies otherwise.
• ✓Within Section 40(b) Limits: Total remuneration must not exceed the Section 40(b) partner remuneration revised limit for your book profit. Excess amounts are disallowed and added back to taxable income.
• ✓Actually Paid During the Year: Remuneration must be actually paid or credited during the financial year. Accruals without payment don't qualify for deduction in that year.
• ✓Documented & Traceable: Maintain clear records of remuneration paid, bank transfers, and partner acknowledgments. This documentation is crucial during audits to prove compliance with Section 40(b).

Using the Section 40(b) partner remuneration revised limit calculator offers multiple advantages:

Accuracy & Compliance: Manual calculations are prone to errors, especially with the tiered structure introduced in Finance Act 2025. This calculator eliminates mistakes and ensures 100% compliance with current tax rules. Accurate calculations protect your firm from disallowance notices and penalties during audits.

Time-Saving: Instead of manually computing 90% on one slab and 60% on another, the calculator provides instant results. This is particularly valuable when calculating limits for multiple scenarios or when planning remuneration for the next financial year.

Audit Defense: The breakdown table generated by the calculator serves as documentation for your tax filing and audit defense. It clearly shows how the limit was calculated, making it easier to explain to tax officials if questioned.

Planning Tool: Use this calculator to determine the optimal remuneration structure before the financial year ends. Know exactly how much you can deduct and plan partner compensation accordingly. This helps in tax planning and ensuring the firm doesn't overpay remuneration unnecessarily.

This calculator brings transparency and simplicity to Section 40(b) deduction calculations:

Instant Results: No more manual math or hunting through tax guides. Enter two numbers—book profit and optionally remuneration paid—and get complete breakdown in seconds.

Breakdown Transparency: The slab-wise breakdown shows exactly how ₹5,40,000 is allocated to the first ₹6,00,000 tier and how the remaining percentage applies. This clarity helps partners and accountants understand the revised limits deeply.

Error Prevention: Manual calculations using pen and paper are prone to mistakes. This calculator follows the exact Finance Act 2025 formula, ensuring no mathematical errors, no confusion about which slab to apply, and no rounding errors.

Mobile-Friendly: Access this calculator anytime, anywhere—on your office desktop, laptop, or mobile phone. No app download required. Calculations happen instantly in your browser with zero data stored.

Partnership Planning: Determine the exact remuneration you can deduct, decide how to distribute it among partners, and optimize your tax position. This forward planning prevents disallowance and unnecessary tax liability.