Question
A firm pays Rs. 3,00,000 as salary to partners, allowed as per deed. Book profit is Rs. 10,00,000. What is the maximum allowable deduction for partner’s salary under Section 40(b)?
Solution
Book profit = ₹10,00,000 Allowable salary = • 90% of first ₹3,00,000 = ₹2,70,000 • 60% of remaining ₹7,00,000 = ₹4,20,000 • Total = ₹6,90,000 Paid = ₹3,00,000 → fully allowable But maximum allowable is ₹6,90,000, so ₹3,00,000 is within limit, but the correct answer should reflect the maximum allowable, which is ₹6,90,000.Â
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