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A firm's book profit is Rs 10,00,000 and it paid its working partners authorised remuneration of Rs 8,50,000. The amount disallowed under section 40(b)(v) is:
ARs 1,50,000
BRs 2,50,000
CRs 8,50,000
DRs 70,000
Answer & Solution
Correct answer: D. Rs 70,000
1. Compute the ceiling slab-wise on book profit of Rs 10,00,000.
2. First Rs 6,00,000: higher of Rs 3,00,000 and 90% of Rs 6,00,000 (Rs 5,40,000) = Rs 5,40,000.
3. Balance Rs 4,00,000: 60% x Rs 4,00,000 = Rs 2,40,000.
4. Maximum allowable remuneration = 5,40,000 + 2,40,000 = Rs 7,80,000.
5. Remuneration paid Rs 8,50,000 exceeds the ceiling, so disallowance = 8,50,000 - 7,80,000 = Rs 70,000.
6. Option C disallows the entire remuneration although the deed authorises it and a ceiling-based excess alone is disallowable; option A wrongly applies 90% only to Rs 6,00,000 and ignores the balance slab; option B has no basis in the formula.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 3 PGBP, PDF p. 85_
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