INCREASE IN LIMIT OF REMUNERATION TO WORKING PARTNERS APPLICABLE W.E.F FY 2024-25

Working Partner Remuneration Limit Increased:

Finance (No 2) Act 2024 amended section 40 to increase the limit of remuneration to working partners.

Section 40 of the Act stipulates the amounts that are not permissible as deductions when calculating income under the category of “Profits and gains of business or profession.” Specifically, sub-clause (v) of clause (b) within this section mandates the disallowance of any remuneration paid to a working partner, provided that such payment is sanctioned by the partnership deed and pertains to any period subsequent to the execution of that deed, to the extent that the total remuneration paid to all partners in the previous year surpasses the cumulative amount determined as follows:

% of profit allowable as remuneration	Before Amendment	After Amendment
90%	90% of profit upto Rs. 3 Lakhs or Rs.1.5 Lakhs whichever is higher.	90% of profit upto Rs. 6 Lakhs or 3 Lakhs whichever is higher
60%	60% of profit above Rs. 3 Lakhs	60% of profit above Rs. 6 Lakhs

This increase in the remuneration limit is indirectly influenced by the introduction of section 194T, which mandates that TDS be deducted and remitted at a rate of 10% if the remuneration paid to a partner exceeds Rs. 20,000. If tax planning is executed timely—specifically during the fiscal year and prior to its conclusion—firms may realize tax savings by capitalizing on the enhanced remuneration limits for partners, ultimately assisting both partners and the firm in minimizing tax liabilities on disposable income.

The amendments to sub-clause (v) of clause (b) of section 40 of the Act will take effect from the 1st day of April, 2025 and will, accordingly, apply in relation to assessment year 2025-2026 and subsequent years.