The Finance Act 2024 limits: on the first ₹6 lakh of book profit (or a loss), the higher of ₹3,00,000 or 90%; on the balance, 60%. Plus the two companions every firm audit checks — the 12% interest cap and Sec 194T TDS at 10%.
The slabs only matter if the payment qualifies at all: remuneration must go to a working partner, must be authorised by the partnership deed (and not for a period before the deed), and book profit must be computed per Explanation 3 — the profit as per the P&L, adjusted for the remuneration itself. From 1 April 2025, Sec 194T adds the compliance layer: 10% TDS on remuneration, commission, bonus and interest to partners above ₹20,000 aggregate. The 1961-Act citation applies through FY 2025-26; for FY 2026-27 documents use the new-Act number via the section mapper.
Sec 40(b) does not decide what partners may be paid — the deed does. It decides what the FIRM may deduct. The Finance Act 2024 limits (AY 2025-26 onwards): on the first ₹6,00,000 of book profit, or in case of a loss, the higher of ₹3,00,000 or 90% of book profit; on the balance of book profit, 60%. Payments beyond the limit are disallowed in the firm’s hands and reported in Form 3CD clause 21.
Book profit means the net profit per the P&L computed under the business-income provisions, with partner remuneration added back — a circular-looking definition that simply means: compute the ceiling on profit BEFORE remuneration. Interest to partners is deducted first (subject to its own 12% cap), then the remuneration ceiling is computed on what remains.
Sec 194T (from 1 April 2025) makes firms deduct 10% TDS on salary, remuneration, commission, bonus and interest to partners above ₹20,000 aggregate per year — so the 40(b) working paper and the TDS compliance check now travel together in a firm audit.
A firm’s book profit before remuneration (after 12% partner interest) is ₹18,00,000. The deed authorises remuneration, and the firm paid its two working partners ₹12,00,000 in total.
