Partner Remuneration Calculator (Section 40(b))
Maximum remuneration a firm or LLP can deduct for its working partners under section 40(b) of the Income-tax Act, 1961 and section 35(e) of the Income-tax Act, 2025, worked out from book profit — and the reverse: the profit needed to pay a given amount.
- Net profit entered
- ₹20,00,000
- Book profit
- ₹20,00,000
- On first ₹6,00,000 — higher of ₹3,00,000 or 90%
- ₹5,40,000
- On balance ₹14,00,000 at 60%
- ₹8,40,000
- Maximum allowable
- ₹13,80,000
Deducting ₹13,80,000 saves the firm about ₹4,30,560 of tax at 31.2%; the partners are taxed on it as business income.
This calculator gives an estimate for general guidance and is not tax or legal advice. Rates, limits and the way they apply change with the law and the facts; confirm your figures with a Chartered Accountant before relying on them.
How section 40(b) / section 35(e) limits partner remuneration
Which law applies. For income up to FY 2025-26 (AY 2026-27) the limits are in section 40(b) of the Income-tax Act, 1961 — clause (v) for remuneration and clause (iv) for interest. From 1 April 2026 (tax year 2026-27) the Income-tax Act, 2025 applies, and the same rules sit in section 35(e): clause (e)(iii) for the remuneration ceiling, (e)(iv) for the 12% interest cap and (e)(v) for the definitions of book profit and working partner. The ceilings used by this calculator are the same under both Acts.
A partnership firm or LLP may deduct remuneration paid to its working partners only if the partnership deed authorises it, and only up to a ceiling that depends on book profit:
| Slice of book profit | Remuneration allowed |
|---|---|
| First ₹6,00,000 (or a loss) | ₹3,00,000 or 90% of book profit, whichever is more |
| The balance | 60% of the balance |
Anything paid above the ceiling is not deductible, so it is added back to the firm’s income. Interest on partners’ capital is capped separately at 12% a year simple interest (or the lower rate in the deed).
What counts as book profit
Book profit is the net profit in the profit and loss account, worked out under the business-income rules (Chapter IV-D), increased by any partner remuneration already debited. Interest above the allowed rate is added back, and items such as capital gains that are credited to the account but taxed elsewhere are taken out. Use the adjustments box for these.
Quick reference
| Book profit | Maximum remuneration | As % of book profit |
|---|---|---|
| Nil / loss | ₹3,00,000 | — |
| ₹3,00,000 | ₹3,00,000 | 100% |
| ₹6,00,000 | ₹5,40,000 | 90% |
| ₹10,00,000 | ₹7,80,000 | 78% |
| ₹20,00,000 | ₹13,80,000 | 69% |
| ₹50,00,000 | ₹31,80,000 | 63.6% |
| ₹1,00,00,000 | ₹61,80,000 | 61.8% |
Worked example
A firm shows a net profit of ₹15,00,000 after debiting ₹8,00,000 of partner remuneration and ₹2,40,000 of interest on ₹10,00,000 of capital (the deed says 18%). Interest is limited to 12%, so ₹1,20,000 is added back. Book profit is ₹15,00,000 + ₹8,00,000 + ₹1,20,000 = ₹24,20,000. The ceiling is ₹5,40,000 on the first ₹6,00,000 plus 60% of the balance ₹18,20,000 = ₹16,32,000, so the ₹8,00,000 paid is fully allowed.
Conditions to meet before the ceiling applies
- The partner is a working partner — an individual actively engaged in the business.
- The partnership deed authorises the remuneration, and states the amount or how it is worked out.
- The remuneration relates to a period after the deed or its amendment, never earlier.
- The firm computes its profit from books; it is not under presumptive taxation.
Common mistakes
- Starting from net profit after remuneration and forgetting to add the remuneration back.
- Treating all interest as allowed when the deed rate is above 12%.
- Paying remuneration the deed does not authorise, or to a non-working partner.
- Leaving capital gains or other separately taxed items inside book profit.
Reverse calculation
Partners often start from the amount they want to draw. The reverse mode works the formula backwards: up to ₹3,00,000 needs no minimum profit; up to ₹5,40,000 needs book profit of remuneration ÷ 0.9; above that, book profit is ₹6,00,000 plus (remuneration − ₹5,40,000) ÷ 0.6. It also converts that into the net profit you need before and after remuneration.
Our partners advise on this every year — see Direct tax advice on partnership firms and LLPs or contact an office near you.
Common questions
Who is a working partner?
An individual partner who is actively engaged in conducting the firm’s business. Remuneration to a sleeping partner, or to a partner that is itself a company or firm, is not deductible.
Does the deed need to mention remuneration?
Yes. The remuneration must be authorised by the deed and be in accordance with it, and it can only relate to a period after the deed (or an amendment) was made — it cannot be paid retrospectively.
Does this apply to an LLP?
Yes. For these purposes an LLP is treated as a firm, so the same ceilings apply to remuneration and interest paid to its partners.
What if the firm declares profit under section 44AD or 44ADA?
Under the presumptive schemes the deemed profit is taken after all deductions, so partner remuneration and interest are not separately deducted. This calculator is for firms that compute profit from their books.
Is the limit on each partner or on the firm?
On the firm in total. How the amount is shared between the working partners is a matter for the deed.
Which section covers partner remuneration under the Income-tax Act, 2025?
Section 35(e). Clause (e)(iii) caps the aggregate remuneration to working partners, (e)(iv) caps interest at 12% simple, and (e)(v) defines book profit and working partner. It replaces section 40(b) of the 1961 Act from tax year 2026-27.
Does this work under both the Income-tax Act, 1961 and the Income-tax Act, 2025?
Yes. Section 40(b) of the Income-tax Act, 1961 governs FY 2025-26 and earlier years. The Income-tax Act, 2025, in force from 1 April 2026, carries the same rules in section 35(e) with the same ceilings (₹3,00,000 / 90% / 60% and 12% interest). The wording is not identical, so check the provision for the year you are filing.