Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Flat 30%, after partner pay
A firm pays tax at a flat 30% (plus surcharge and cess) on its profits. Crucially, before that, it can deduct remuneration and interest paid to working partners — within the ceilings of Section 40(b) — which moves income from the firm to the partners and can lower the overall burden. Confirm the current 40(b) limits, which were revised.
No double tax on profit share
Once the firm has paid its tax, the partners’ share of profit is exempt in their hands — there’s no second layer of tax on distribution (unlike a company, where withdrawals can be taxed again). The remuneration and interest the partners receive is taxable for them, as business income, since the firm deducted it.
A worked example
Example: a firm earns ₹30 lakh before partner pay. It pays partners ₹12 lakh of permissible remuneration (deductible), leaving ₹18 lakh taxed at 30% = ₹5.4 lakh. The partners pay tax on their ₹12 lakh remuneration at their slabs, but their profit share from the remaining is exempt. Comparing this to a company often decides the structure. Our team can optimise the partner-pay split.