Partner and director salary

Question BankCategory: Income TaxPartner and director salary
Rahul Arya asked 4 years ago

If partners received salary from firm then it shall be taxable in hands of partner under which head and for this which itr should file by partner and firm  further if partners received income on the basis of share of profit whether it is taxable in hands of partner.Besides if director received remuneration then it shall be treated as salary person or professional person nd which return should be filed by director and company 

1 Answers
Ashok Kumar answered 4 years ago

Salary of a partner of a firm taxable as business income:
As per section 28[v] any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm is taxable as business income of such partner.
Further the above sum paid to the partner for interest, salary, bonus, Commission or remuneration is allowed as deduction to the firm under section 40(b).
Partners share of profit always exempt under section 10(2A).
CBDT vide circular 8/2014 clarify that the Partner’s share of profit in the partnership firm shall be always exempt under section 10(2A).
The clarification has been issued to remove the doubt that under no circumstances share of profit be taxed in the hands of its partner even though the partnership firm paying no tax on its profit on account of claiming deduction or exemption.

Salary of Director of a company

If employer employee relationship exists relationship exists between the director and the company then the salary received by the director of a company is taxable under the head salary otherwise it is taxable under the head income from other sources.  This is decided in case to case basis. Salary of a executive director or whole time time whole time time whole time time director is taxable under the head salary. In a case Court has decided that remuneration received by whole time director was taxable as Salary and not as Income from Other Sources as there was relationship of employer and the employee between the company and the wholetime director and the order of the Tribunal has been reversed.
Sitting fees of a nominee director is taxable under the head income from other sources.

Which ITR form :-
1.  Partner of a firm receiving salary from the firm has to file his income tax return in ITR3.
2. If partnership firm is required to file income tax return in form ITR 5.
3. A director of a company receiving salary from the company where employee employer relationship exist has to choose income  tax form depending upon his incomes under other heads if no income other than salary and total income is upto Rs. 50 lakhs then ITR-1 can be filed.
4. Companies other than companies claiming exemption under section 11, are  required to file income tax return in form ITR-6.

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