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Free instant Section 40(b) partner remuneration calculator for India FY 2025-26. Finance Act 2025 revised limits. Accurate, no login. Calculate now!
Free Section 40(b) partner remuneration calculator India FY 2025-26. Apply Finance Act 2025 limits to compute allowable partner salary & bonus deduction.
Calculate the maximum partner remuneration allowed under Section 40(b) for FY 2025-26 instantly - free tool with book profit slabs, disallowance check.
Compute the maximum allowable partner salary and bonus deduction under Section 40(b) of the Income Tax Act, 1961. Finance Act 2024 revised limits applied instant slab-wise breakdown for partnership firms and LLPs. Zero data storage. Runs entirely in your browser.
Under Section 40(b) of the Income Tax Act, 1961, partnership firms and LLPs can deduct partner remuneration — salary, bonus, and commission — only up to a prescribed ceiling based on their book profit. Any excess paid is disallowed and added back to taxable income.
This free calculator applies the Finance (No. 2) Act, 2024 revised limits effective from 1 April 2025 (AY 2025-26 onwards), as amended in Section 40(b)(v) by Act No. 15 of 2024. Whether your firm's book profit is ₹2 lakhs or ₹2 crores, get an instant slab-wise breakdown of the maximum aggregate deductible remuneration — all processed locally in your browser with complete privacy.
Official statutory reference: Section 40(b)(v) as amended — available at the Income Tax Department's official Section 40 page.
The Finance (No. 2) Act, 2024 (No. 15 of 2024) doubled the first-slab threshold and raised the minimum floor for deductible partner remuneration, effective from 1 April 2025. The limits below are the aggregate ceiling for all working partners combined — not per individual partner.
| Book Profit Scenario | Until FY 2023-24 (Old Limit) | FY 2025-26 Onwards (New Limit) |
|---|---|---|
| Loss / Book Profit ≤ ₹3,00,000 | ₹1,50,000 or 90% of BP, whichever is higher | ₹3,00,000 floor (minimum guarantee) |
| Book Profit ≤ ₹6,00,000 | ₹1,50,000 or 90% of BP, whichever is higher | ₹3,00,000 or 90% of BP, whichever is higher |
| Book Profit > ₹6,00,000 | 90% on first ₹3L + 50% on balance | 90% on first ₹6L (= ₹5,40,000) + 60% on balance |
Book Profit: ₹4,00,000
90% × ₹4,00,000 = ₹3,60,000 > ₹3,00,000 floor
Allowed: ₹3,60,000
2. Example
Book Profit: ₹10,00,000
₹6L @ 90% = ₹5,40,000 + ₹4L @ 60% = ₹2,40,000
Allowed: ₹7,80,000
3. Example (Loss Year)
Book Profit: –₹1,50,000
Negative BP — floor applies regardless of loss amount
Allowed: ₹3,00,000
The calculator follows the Income Tax Act, 1961 as amended by the Finance (No. 2) Act, 2024. Here is the exact logic applied at each step.
Book profit is the net profit per the firm's profit and loss account for the year, computed in accordance with Chapter IV-D, after adding back any remuneration already paid to working partners that was debited to the P&L account. Formula: Book Profit = Net Profit (per P&L) + Partner Remuneration charged to P&L ± other required income-tax adjustments. Confirm the exact figure with your CA before applying the ceiling.
If book profit ≤ ₹6,00,000 (or negative): max(₹3,00,000, 90% of BP).
If book profit > ₹6,00,000: ₹5,40,000 + 60% of (BP − ₹6,00,000). The result is the aggregate limit for all working partners combined — not per partner.
Enter the total remuneration paid to all working partners during the year. The calculator compares it with the allowed limit. If actual ≤ allowed, it is fully deductible. If actual > allowed, the excess is disallowed and must be added back to the firm's taxable income.
The results show: Maximum Allowable Deduction, Deductible Amount, Disallowed Excess (if any), and a slab-wise table — useful for ITR-5 preparation, audit documentation, and partner compensation planning.
Partner remuneration tax treatment under Section 40(b) generates errors even among experienced accountants. These are the most common sources of confusion.
The Finance Act 2024 (No. 15 of 2024) revised Section 40(b)(v) significantly from 1 April 2025. Firms still using the old first-slab threshold of ₹3,00,000 and the 50% balance rate are computing an incorrectly low ceiling — leaving legitimate deductions unclaimed.
The dual-rate structure requires splitting book profit at the ₹6,00,000 threshold. Applying a flat 90% or flat 60% to the entire book profit — rather than the correct tier — produces wrong results for most firms, especially those with higher profits.
Book profit under Explanation 3 to Section 40(b) is not the net profit shown in the P&L. The remuneration already charged to the account must be added back before applying the ceiling. Missing this add-back understates book profit and sets a lower limit than the firm is entitled to.
The Section 40(b) ceiling is the combined maximum for all working partners together. A firm with three working partners does not get three separate limits — the formula produces one aggregate number that must cover all of them.
Partner profit shares are distributions of firm earnings and are not subject to Section 40(b). Only salary, bonus, and commission qualify. Clubbing profit distributions into the remuneration figure inflates it and creates disallowance risk.
Deeds that cap remuneration at the old limits (₹1,50,000 floor, ₹3,00,000 first slab) may need a supplementary addendum to authorize remuneration at the higher 2025 ceiling. Without explicit deed authorization, the deduction is disallowed regardless of the statutory limit.
All four conditions below must be satisfied simultaneously. Failing any single one results in the remuneration being disallowed.
Remuneration must be explicitly mentioned in the partnership deed with either the quantum or the method of computation specified. Verbal authorization is not sufficient. Firms should also review their deeds post-Finance Act 2024 to ensure the remuneration clause reflects the revised limits and is not capped at the old ceiling.
Only partners actively engaged in conducting the firm's business or profession qualify as working partners under Explanation 4 to Section 40(b). Sleeping, inactive, or capital-only partners do not qualify, and remuneration paid to them is fully disallowed under Section 40(b)(i).
Total remuneration across all working partners must not exceed the ceiling derived from the book profit formula. The excess over the limit is disallowed in the firm's hands and added back to taxable income. Note: the disallowed amount is still taxable in the partner's hands even if it is disallowed for the firm.
Remuneration can be authorized only from the date of the partnership deed under which it is claimed. Payments covering any period before the deed was executed are not deductible under Section 40(b)(iii), even if the deed is subsequently executed or revised.
Interest on Capital (Section 40(b)(iv)): Interest on partner capital is a separate element — deductible up to 12% per annum simple interest, provided it is authorized in the deed. The 12% cap and the remuneration slab ceiling are independent of each other.
90% × ₹2,50,000 = ₹2,25,000
Floor = ₹3,00,000 > ₹2,25,000
→ Allowed: ₹3,00,000 (floor applies)
Partners may collectively receive up to ₹3,00,000 as deductible remuneration even though the percentage calculation gives a lower figure. The floor ensures small and early-stage firms are not penalized.
First ₹6,00,000 @ 90% = ₹5,40,000
Remaining ₹9,00,000 @ 60% = ₹5,40,000
→ Allowed: ₹10,80,000
If actual remuneration paid to all working partners was ₹12,00,000, then ₹1,20,000 is disallowed and added back to the firm's taxable income at 30%.
First ₹6,00,000 @ 90% = ₹5,40,000
Remaining ₹44,00,000 @ 60% = ₹26,40,000
→ Allowed (aggregate): ₹31,80,000
This ₹31,80,000 is the combined limit for all three partners — not per partner. The firm decides how to distribute this among working partners in line with the deed. Section 194T TDS at 10% also applies to each partner's payment exceeding ₹20,000.
Negative book profit — percentage calculation not applicable
→ Allowed: ₹3,00,000 (minimum floor)
Even in a loss year, the firm can deduct up to ₹3,00,000 in total partner remuneration. This floor was doubled from ₹1,50,000 by the Finance Act 2024, providing meaningful relief to loss-making firms.
Traditional two-or-more-partner firms governed by the Indian Partnership Act, 1932. Must compute the aggregate deductible remuneration under the Finance Act 2024 limits before preparing the P&L, finalizing accounts, and filing ITR-5 on the income tax portal.
LLPs under the LLP Act, 2008 are treated as "firms" for income tax purposes and face the same Section 40(b) structure. LLPs must additionally comply with Section 194T from 1 April 2025. The LLP Agreement serves the same function as a partnership deed for Section 40(b) purposes.
CAs preparing ITR-5, conducting tax audits (Form 3CA-3CD under Section 44AB), or advising clients on compensation structuring. Use the slab-wise breakdown as supporting documentation for audit defense and to explain the revised Finance Act 2024 limits to clients and tax officials.
Working partners deciding how much remuneration to draw before the books close on 31 March. Use the tool before year-end to identify the maximum deductible amount — avoiding the surprise of a disallowance adjustment at the time of filing.
Compliance departments monitoring cumulative partner remuneration against Section 40(b) limits throughout the year. Track the running total against the projected limit to ensure the firm does not breach the ceiling before year-end — especially relevant post-Section 194T, which requires monthly TDS tracking.
Firms responding to Section 143(3) scrutiny assessments or Section 148 notices where the Assessing Officer has questioned partner remuneration deductions. The calculator generates a documented, formula-based justification for the claimed deduction limit.
Book profit is the single most important input in the Section 40(b) calculation. An error here cascades directly into an incorrect deduction ceiling. Here is exactly how it is defined and computed.
Book profit means the net profit as shown in the profit and loss account of the firm for the year, computed in accordance with Chapter IV-D (Profits and Gains of Business or Profession) of the Income Tax Act, after adding back any remuneration paid or payable to working partners that was already debited to the P&L account.
Book Profit = Net Profit as per P&L account + Partner remuneration charged to P&L+ Business losses b/f debited to P&L (if any)− Income from other heads credited to P&L (± other adjustments as required under Chapter IV-D)
Remuneration — Section 40(b) Applies
Salary, commission, bonus paid to working partners. Deductible by the firm if within the limit. Taxable as Profits & Gains of Business (PGBP) in the partner's hands under ITR-3.
Profit Share — Section 40(b) Does NOT Apply
Distribution of firm profits based on the agreed profit-sharing ratio. Not an expense for the firm. Exempt in the partner's hands under Section 10(2A) of the Income Tax Act.
Section 194T: TDS on Partner Payments — Effective 1 April 2025
Introduced by Finance (No. 2) Act, 2024 — applies to all firms and LLPs from FY 2025-26
Section 194T requires every partnership firm and LLP to deduct TDS at 10% when aggregate payments to any partner — including salary, remuneration, bonus, commission, or interest on capital — exceed ₹20,000 in a financial year. TDS must be deducted at the time of credit or payment, whichever is earlier. If the partner fails to furnish PAN or Aadhaar, TDS is deducted at 20%.
Key points for FY 2025-26:
Section 194T is a separate compliance requirement from the Section 40(b) deductibility limit. A firm must comply with both. Use the Section 194T TDS threshold calculator to check your firm's TDS obligations alongside this remuneration limit check.
Until FY 2023-24, the first-slab threshold was ₹3,00,000 (floor ₹1,50,000 or 90%, whichever was higher) and the balance was capped at 50%. Finance Act 2024 changed these to ₹6,00,000 first slab (floor ₹3,00,000) and 60% balance from FY 2025-26. Firms still using the old rates are leaving significant deductions unclaimed.
Per Explanation 3 to Section 40(b), remuneration already debited to the P&L must be added back before arriving at book profit. Skipping this understates book profit and reduces the allowed ceiling — causing the firm to claim a lower deduction than it is entitled to.
Applying 90% uniformly to the entire book profit (instead of only the first ₹6,00,000), or applying 60% to the full amount, produces incorrect results for any firm with book profit above ₹6,00,000. The threshold split at ₹6,00,000 is mandatory.
The formula produces one combined number for the entire firm — not separate limits per partner. A firm with four working partners and ₹20,00,000 book profit does not have four separate ceilings.
From 1 April 2025, failing to deduct TDS at 10% on partner payments exceeding ₹20,000 creates a separate compliance exposure. The Section 194T default is independent of the Section 40(b) deductibility question and attracts its own interest and penalty provisions.
Without explicit deed authorization that covers the amount or computation method of remuneration, no deduction is allowed — even if the payment is within the Section 40(b) limits. Post-Finance Act 2024, deeds that capped remuneration at the old limits should be updated via a supplementary addendum.
Firms computing income on a presumptive basis under Section 44AD or Section 44ADA cannot claim partner remuneration deductions under Section 40(b). The deduction is available only to firms assessed under regular accounting provisions (Sections 28–43C).
No login, no registration, no app download required.
This must be the figure per Explanation 3 to Section 40(b) — net profit with partner remuneration added back. Enter a negative number if the firm has a loss.
Enter the combined salary, bonus, and commission paid to all working partners to calculate the disallowed excess.
Results appear instantly — no server call, fully offline.
The output shows: Maximum Allowable Deduction, Deductible Amount (if actual paid was entered), Disallowed Amount (if applicable), and the full two-slab computation — suitable for ITR-5 preparation and audit documentation.
The slab-wise breakdown serves as supporting evidence for your Section 40(b) deduction during tax audit or assessment proceedings.
These are verified official and authoritative sources used in building this calculator. All links have been tested for 200 responses.
Official — Government of India
incometaxindia.gov.in — statutory text of Section 40(b) including Finance Act 2024 amendment footnotes (Act No. 15 of 2024, w.e.f. 1-4-2025)
incometax.gov.in — ITR-5 filing guidance, AY 2026-27 tax rates, applicable forms for partnership firms and LLPs
incometax.gov.in — File ITR-5, pay advance tax, download Form 26AS, AIS, and TDS certificates
egazette.gov.in — Act No. 15 of 2024. Clause 14 amends Section 40(b)(v)(a): ₹3,00,000 → ₹6,00,000 and ₹1,50,000 → ₹3,00,000, w.e.f. 1 April 2025
indiabudget.gov.in — Bill No. 55-C of 2024. Original amendment text for Section 40(b)(v) as passed by Lok Sabha on 7 August 2024
Authoritative Commentary & Guides
Detailed professional analysis of Finance Act 2024 amendments, slab comparison, and Section 194T TDS interaction
FY 2025-26 slab table, conditions, working partner definition, and Section 194T applicability
Book profit formula, revised limit computation examples, and partner taxation treatment
Full statutory text of Section 40 of the Income Tax Act, 1961 with case law references
Old vs. new limit comparison table, effective date confirmation, and Finance Bill 2024 summary
1. TDS Planning
Section 194T TDS Threshold Calculator
Check per-partner TDS obligations on payments exceeding ₹20,000 in FY 2025-26
2.Official Filing
File ITR-5 for FY 2025-26 (AY 2026-27) on the official income tax portal
Pay advance tax, self-assessment tax, and TDS on partner payments — all on the e-filing portal
All calculations in this Section 40(b) calculator run entirely within your browser. Your firm's financial data never leaves your device.
This calculator is based 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) limits — ₹6,00,000 first-slab threshold, ₹3,00,000 minimum floor, 60% balance rate — are effective for Assessment Year 2025-26 onwards per the amendment gazette dated July 2024. Section 194T TDS obligations effective 1 April 2025 are described but computed separately.
Calculations verified by our team including CA Anita Patil. View our full accuracy policy and meet the team →
