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For Chartered AccountantsRates reviewed September 2026

Partner Remuneration Calculator under Section 40(b)

This partner remuneration calculator applies the section 40(b) ceiling on how much salary, bonus, commission or remuneration a firm or LLP can deduct for its working partners, using the revised book profit slabs that took effect from FY 2025-26 (AY 2026-27) and continue for FY 2026-27. It also computes the interest on capital that is deductible and the TDS the firm has to withhold on partner payments.

Two limbs matter. Remuneration is capped by a book profit slab and is deductible only for working partners, only if authorised by the partnership deed and only for the period after the deed provides for it. Interest on partner capital is deductible up to 12 percent simple interest a year, again only if the deed authorises it, and it is deducted before book profit is arrived at.

Since 1 April 2025 there is also a withholding obligation. Section 194T requires a firm or LLP to deduct TDS on partner payments. From 1 April 2026 the same rule sits in section 393(3) of the Income-tax Act, 2025, with the rate and threshold unchanged. Getting this wrong costs the firm a disallowance under the TDS default provisions on top of the interest and late fee.

Partner Remuneration Calculator

Business income only. A loss is entered as a negative figure.

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Simple interest a year. Anything above 12% is disallowed.

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Remuneration to a non-working partner is not deductible at all.

partners

Maximum remuneration deductible

₹16,80,000

section 40(b), now section 35(e), FY 2026-27

Book profit as entered
₹25,00,000
Interest on capital paid at 12%on capital of ₹40 lakh
₹4,80,000
Interest allowable at the 12% ceiling
₹4,80,000
Interest disallowedinterest is within the 12% ceiling
₹0
Book profit for the 40(b) ceilingafter allowable interest
₹25,00,000
First ₹6,00,000 of book profithigher of ₹3,00,000 or 90% of book profit
₹5,40,000
Book profit above ₹6,00,000 at 60%
₹11,40,000
Deductible to working partners2 working partners
₹16,80,000
Partner payments covered by 194Tremuneration plus allowable interest
₹21,60,000
TDS u/s 194T at 10%the per-partner aggregate of ₹10,80,000 crosses ₹20,000
₹2,16,000
  • Remuneration and interest are deductible only if the partnership deed authorises them, and only for the period after that deed.
  • Section 194T, now section 393(3) of the Income-tax Act, 2025, applies to the whole amount once the ₹20,000 per partner aggregate is crossed.

The formula

Maximum deductible remuneration = higher of ₹3,00,000 or 90% of the first ₹6,00,000 of book profit, plus 60% of book profit above ₹6,00,000

Book profit
Net profit under the head profits and gains of business or profession, computed after deducting interest to partners but before deducting partner remuneration.
Working partner
An individual partner actively engaged in conducting the affairs of the firm. Remuneration to a non-working partner is not deductible at all.
Interest on capital
Deductible up to 12% simple interest a year on the partner's capital, if authorised by the deed.
194T TDS
10% on salary, remuneration, commission, bonus or interest paid or credited to a partner, once the aggregate for the year exceeds ₹20,000.

Where book profit is a loss, the ceiling on deductible remuneration is ₹3,00,000.

How to calculate it

  1. 1

    Confirm the partnership deed authorises the payment

    Remuneration and interest are deductible only if the deed provides for them and quantifies them or lays down the manner of quantification. A payment for a period before the date of the deed that authorises it is not deductible, so retrospective resolutions do not help.

  2. 2

    Compute book profit

    Start from the net profit under the head profits and gains of business or profession as shown in the profit and loss account, adjust it as required by the Act, deduct interest allowed to partners, and add back any partner remuneration already debited. Income assessable under other heads, such as capital gains or house property, is excluded.

  3. 3

    Apply the slab ceiling

    On the first ₹6,00,000 of book profit, or in the case of a loss, the ceiling is the higher of ₹3,00,000 or 90 percent of book profit. On book profit above ₹6,00,000 the ceiling is 60 percent of the excess. These are the revised limits applicable from FY 2025-26 onwards.

  4. 4

    Restrict interest on capital to 12 percent

    Interest actually paid or credited to partners on capital is deductible up to 12 percent simple interest a year. Anything above that is disallowed in the firm's hands, and the excess is not taxable in the partner's hands either. Interest is deducted before book profit is computed, which lowers the remuneration ceiling.

  5. 5

    Deduct TDS under section 194T

    Where the aggregate of salary, remuneration, commission, bonus and interest payable to a partner exceeds ₹20,000 in the financial year, deduct 10 percent. The threshold is per partner per year and, once crossed, the deduction applies to the whole amount, not just the excess. Deduct at the time of credit, including a credit to the partner's capital account, or payment, whichever is earlier.

  6. 6

    Check the partner side

    Remuneration and interest allowed to the firm are taxable in the partner's hands as business income, and any amount disallowed in the firm's hands is not taxed again in the partner's hands. The partner's share of the firm's profit remains exempt in the partner's hands and is outside the remuneration computation.

Section 40(b) ceiling on working partner remuneration, FY 2025-26 onwards

Section 40(b) ceiling on working partner remuneration, FY 2025-26 onwards
Book profitMaximum deductible remuneration
Loss, or book profit up to ₹6,00,000Higher of ₹3,00,000 or 90% of book profit
Book profit above ₹6,00,000₹5,40,000 plus 60% of book profit above ₹6,00,000

Worked example: firm with two working partners, FY 2026-27

Partner capital
₹40,00,000
Interest on capital at 12% per annum
₹4,80,000
Book profit after interest, before remuneration
₹25,00,000
Deed
Authorises remuneration and interest at 12%
  • First ₹6,00,000 of book profit: higher of ₹3,00,000 or 90% of ₹6,00,000 = ₹5,40,000
  • Balance book profit of ₹19,00,000 at 60% = ₹11,40,000
  • Ceiling under section 40(b) = ₹5,40,000 + ₹11,40,000 = ₹16,80,000
  • Interest on capital is within the 12% limit, so the full ₹4,80,000 is deductible
  • Total partner payments covered by section 194T = ₹16,80,000 + ₹4,80,000 = ₹21,60,000
  • TDS at 10% on ₹21,60,000 = ₹2,16,000

Maximum remuneration deductible = ₹16,80,000, and TDS to be deducted on partner payments = ₹2,16,000

Frequently asked questions

On the first ₹6,00,000 of book profit, or where there is a loss, the ceiling is the higher of ₹3,00,000 or 90 percent of book profit. On book profit above ₹6,00,000 it is 60 percent of the excess, which works out to ₹5,40,000 plus 60 percent of the balance. These revised limits apply from FY 2025-26 (AY 2026-27) onwards and continue for FY 2026-27.
Take the net profit shown in the profit and loss account under the head profits and gains of business or profession, make the adjustments the Act requires, deduct interest allowed to partners, and add back any partner remuneration already debited. Income assessable under other heads, such as capital gains, rental income or interest from investments, is excluded. The ceiling is then applied to that figure.
Interest on a partner's capital is deductible up to 12 percent simple interest a year, and only if the partnership deed authorises it. Interest above 12 percent is disallowed in the firm's hands and correspondingly is not taxed in the partner's hands. Because interest is deducted before book profit is computed, a higher interest payout reduces the remuneration ceiling.
Section 194T requires a partnership firm or LLP to deduct TDS on salary, remuneration, commission, bonus or interest paid or credited to a partner. It applies from 1 April 2025, so FY 2025-26 was the first year of compliance. Deduction is required at the time of credit or payment, whichever is earlier, and a credit to the partner's capital account counts as credit.
The rate is 10 percent and the threshold is ₹20,000 in aggregate per partner for the financial year, taking salary, remuneration, commission, bonus and interest together. Once the aggregate crosses ₹20,000, TDS applies to the entire amount and not merely the excess over the threshold. The firm must hold a TAN, deposit the tax and report it in the quarterly TDS statement.
The section lists salary, remuneration, commission, bonus and interest. A partner's share in the total income of the firm, which is exempt in the partner's hands because the firm has already been taxed on it, is not among the listed payments. Drawings against that share are also not remuneration, though the characterisation should follow what the deed and the books actually record.
From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act. The partner remuneration and interest provision of section 40(b) is now section 35(e), and the TDS on partner payments under section 194T is now section 393(3) in the withholding table. The limits, the 12 percent interest cap, the 10 percent rate and the ₹20,000 threshold are unchanged by the renumbering.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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