Partnership Remuneration & Interest Calculator (Section 40(b))
Compute allowable partner remuneration and 12% capital interest under Section 40(b) with the updated ₹6,00,000 threshold for FY 2025-26 (AY 2026-27).
Partnership Remuneration & Interest Disallowance Calculator
Compute maximum allowable working partner remuneration and 12% capital interest under Section 40(b), detect statutory disallowances, and evaluate firm vs. partner tax impacts under Budget 2026.
Net Profit adjusted under Explanation 3
Deductible under Section 40(b)(v)
100% within statutory limit
Disallowed under Section 40(b)(iv)
1. Firm Financials & Profit & Loss Particulars
2. Adjustments for Book Profit (Explanation 3 to Section 40(b))
Section 40(b) Statutory ComputationAY 2026-27
Clause 21(a): Amounts debited to P&L by way of interest to partners in excess of 12%: ₹36,000
Clause 21(b): Amounts debited to P&L by way of partner remuneration in excess of Section 40(b) limits: ₹0
These amounts must be reported under Clause 21 of Form 3CD by practicing Chartered Accountants for partnership firms & LLPs.
- Allowed Remuneration (₹9,00,000): Taxable under PGBP in working partners' hands.
- Allowed Interest (₹1,44,000): Taxable under PGBP in partners' hands.
- Disallowed Portion (₹36,000): Fully tax-free in partners' hands (proviso to Section 28(v)).
- Share of Profit: 100% exempt under Section 10(2A).
Section 40(b)(v) Allowable Remuneration Formula
As of September 30, 2026, Section 40(b) limits apply equally to registered Partnership Firms and Limited Liability Partnerships (LLPs). Remuneration paid to non-working partners is 100% disallowed under Section 40(b)(iii), and any remuneration not quantified or authorized in the registered deed cannot be claimed as an expense.
Under the amended Section 40(b), the initial threshold was enhanced from ₹3 Lakhs to ₹6 Lakhs (and minimum remuneration from ₹1.5 Lakhs to ₹3 Lakhs). Interest on capital is strictly capped at 12% p.a. simple interest authorized by the partnership deed.
How to Use the Partnership Remuneration & Interest Calculator (Section 40(b))
Input Financial Performance
Enter net profit as per P&L, total partner capital, and actual interest debited to accounts.
Adjust Book Profit
Specify income from other heads (FD interest, rental) and unabsorbed depreciation to derive Explanation 3 book profit.
Verify Statutory Limits
Instantly check maximum deductible remuneration and identify any excess disallowances.
Export ITR Schedule & Deed Clause
Download detailed working sheet to support your ITR-5 return filing and partnership deed review.
Key Highlights & Capabilities
Frequently Asked Questions (FAQs)
What are the new Section 40(b) limits for AY 2026-27?
Under the amended Section 40(b), for book profit up to ₹6,00,000 (or in case of loss), the maximum deduction is ₹3,00,000 or 90% of book profit, whichever is greater. On the balance book profit exceeding ₹6,00,000, the maximum allowable remuneration is 60%.
Can an LLP or partnership pay more than 12% interest on capital?
A firm can pay higher interest if authorized by its deed, but any interest paid in excess of 12% per annum simple interest will be disallowed as an expense in the hands of the firm under Section 40(b)(iv) and added back to taxable profits.
Is remuneration to sleeping/non-working partners tax-deductible?
No. Section 40(b)(i) expressly provides that remuneration is allowable only if paid to an individual who is actively engaged in conducting the business of the firm (Working Partner). Remuneration paid to non-working partners is fully disallowed.
How is Book Profit calculated under Explanation 3 to Section 40(b)?
Book Profit is computed by taking Net Profit as per P&L, adding back partner remuneration (if debited), adding back excess interest over 12%, adding statutory disallowances (Section 40A(3), etc.), and deducting incomes taxable under other heads (Capital Gains, House Property, Other Sources).
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