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CA Intermediate · Taxation · Profits and Gains of Business or Profession

Sharma & Verma, a partnership firm, has book profit of Rs 9,00,000 for tax year 2026-27 before deducting partners' remuneration, computed as per the tax law. The firm paid Rs 8,00,000 as remuneration to its working partners, as authorised by the partnership deed. Ignoring other items, the firm's income from business is:

The firm's business income is Rs 1,80,000. The allowable remuneration is 90% of the first Rs 6 lakh of book profit, which is Rs 5.4 lakh, plus 60% of the remaining Rs 3 lakh, which is Rs 1.8 lakh. That totals Rs 7.2 lakh. Deducting this from Rs 9 lakh leaves Rs 1.8 lakh.

  1. ARs 1,00,000
  2. BRs 1,80,000Correct
  3. CRs 3,60,000
  4. DRs 4,20,000

Explanation

The allowable remuneration is the higher of Rs 3,00,000 or 90% of book profit on the first Rs 6,00,000, which is Rs 5,40,000, plus 60% of the balance book profit of Rs 3,00,000, which is Rs 1,80,000. The total is Rs 7,20,000. Rs 8,00,000 is paid, so Rs 80,000 is disallowed. Business income is 9,00,000 − 7,20,000 = 1,80,000. Rs 1,00,000 results from deducting the full amount paid.

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