Introduction:

In partnerships, remuneration is essential for rewarding partners for their contributions. Partnerships typically involve two partner types: working partners who manage operations and invest capital, and silent partners who only invest capital. The remuneration terms are specified in the partnership deed's remuneration clause.

Partner's remuneration covers forms like salaries, bonuses, and commissions. Partners receive payments akin to employees, based on their firm contributions. The compensation package generally includes:

1. Remuneration: Salary, bonus, and commission for services.
2. Interest on Capital: Interest on capital invested in the firm.
3. Share of Profit: Share of the firm's generated profits.

Notably, partnership firms can deduct partner interest and remuneration as expenses for 'Profits and Gains from Business and Profession' (PGBP), within Section 40(b) of the Income Tax Act limits.

Conditions for deduction of partner's remuneration:

1. Only working partners receive remuneration.
2. The partnership deed must authorize remuneration, specifying amount/calculation method. Omitting this invalidates the deduction.
3. Remuneration effective from the date in the partnership deed.
4. Remuneration mustn't exceed Section 40(b) limits.

Maximum permissible limits for partner's remuneration:

• First Rs. 3,00,000 of book-profit/loss: Rs. 1,50,000 or 90% of book-profit, whichever is higher.
• Remaining book-profit balance: 60% of book-profit.

Accurate calculations ensure adherence to prescribed limits.

Conditions for deducting interest paid to partners:

1. Interest payments must be authorized in the partnership deed.
2. Interest rate mustn't exceed 12% of capital invested; excess is disallowed.
3. Interest applies from the partnership deed's stated date.

If an individual acts as a partner in a representative capacity (on behalf of another), interest paid to them personally is exempt from disallowance conditions/limits.

Conclusion: It's crucial to understand the tax implications for both partnership firms and partners. Any remuneration or interest disallowed from the firm's taxable profit can still be paid to partners. However, deductible remuneration/interest for the firm under Section 40(b) is taxable for the partner as "Income from Business or Profession." Importantly, no TDS (Tax Deducted at Source) is required for partner salary or interest, even if taxable.

Partners' profit share, irrespective of their partner status (working or sleeping), is tax-exempt under Section 10(2A) of the Income Tax Act. This share, agreed upon by partners, can be based on mutually decided ratios or distributed equally if unspecified in the Partnership Deed. Partners may retain part of the profit for reserves, without fully distributing it.

Grasping partner's remuneration intricacies is vital for those engaged in partnership firms.