The AO says the whole of what I received from my firm is taxable. Which part of a partner's receipts from his firm is actually exempt, and how is the exempt share computed?
Only the partner's share in the total income of the firm is exempt, and only where the firm is separately assessed as such — that is section 10(2A). Interest, salary, bonus, commission and remuneration due to or received by a partner from the firm are not covered by the exemption at all; they are charged in the partner's hands as business income under section 28(v). The proviso to section 28(v) then works the other way, reducing the partner's income to the extent the firm was denied the deduction under section 40(b).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1993-04-01, reported as Section 28(v) inserted by the Finance Act 1992 with effect from 1 April 1993 (footnote 50 on the Department's Year 2009 page for section 28); text of both provisions as in force for assessment year 2025-26, read from the Department's Year 2025 section pages. It bears on section 10(2A), section 28(v), section 40(b), section 184, section 184(5), section 185, section 194T of the Income Tax Act 1961, in Capital Gains Exemptions, Assessment & Scrutiny and Deductions & Disallowances matters.
This is the line that decides most partner-side disputes, and it has three practical edges. First, the Explanation to section 10(2A) does not exempt the partner's share of the book profit — it exempts an amount bearing to the total income of the firm the same proportion as his share in the profits under the deed bears to those profits. Where the firm's total income differs from its book profit, the exempt figure differs from the credit in the capital account, and the difference is not automatically taxable or exempt; it has to be reasoned. Second, the exemption is conditional on the firm being separately assessed as such, so if section 185 or section 184(5) has been applied to the firm the foundation of section 10(2A) is gone. Third, the proviso to section 28(v) prevents the same rupee being taxed twice: where remuneration or interest has been disallowed to the firm under section 40(b), the partner's income under section 28(v) is adjusted to that extent — but it is an adjustment the partner has to claim and evidence from the firm's assessment, not one that happens by itself.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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A partner's receipts from his firm fall into two classes with quite different treatment. His share in the firm's income is dealt with by section 10(2A), which is a clause in the list of incomes not included in total income. His interest, salary, bonus, commission and remuneration are dealt with by section 28(v), which is a charging clause under the head 'Profits and gains of business or profession'. Section 40(b) governs what the firm may deduct in respect of the second class, and sections 184(5) and 185 govern what happens to both classes when the firm is not assessed as a firm.
Section 10(2A) exempts, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. The Explanation fixes the computation: the share is an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits, notwithstanding anything contained in any other law. Section 28(v) charges as business income any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by a partner of a firm from such firm. Its proviso provides that where any such sum, or any part of it, has not been allowed to be deducted under clause (b) of section 40, the income under clause (v) shall be adjusted to the extent of the amount not so allowed to be deducted. Sections 184(5) and 185 both close the circle in the same words: where the firm is so assessed that no deduction for interest, salary, bonus, commission or remuneration to a partner is allowed, those sums shall not be chargeable to income-tax under clause (v) of section 28.
The structure avoids double taxation in both directions. The firm's income has already borne tax in the firm's hands, so the partner's share of it is left out of his total income — but only his share of the firm's total income, computed by the deed ratio, and only where the firm has actually been assessed as a firm. Remuneration and interest, by contrast, have been deducted in computing the firm's income, so they are charged in the partner's hands under section 28(v). Where the deduction has been denied to the firm under section 40(b), the amount has already borne tax at the firm level, and the proviso to section 28(v) removes it from the partner's income. Where the firm is not assessed as a firm at all, sections 184(5) and 185 deny the deduction to the firm and, in the same breath, take the sums out of section 28(v) in the partner's hands.
Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted
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Handle my notice → Ask a CA on WhatsAppOnly the partner's share in the total income of the firm is exempt, and only where the firm is separately assessed as such — that is section 10(2A). Interest, salary, bonus, commission and remuneration due to or received by a partner from the firm are not covered by the exemption at all; they are charged in the partner's hands as business income under section 28(v). The proviso to section 28(v) then works the other way, reducing the partner's income to the extent the firm was denied the deduction under section 40(b). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(2A), section 28(v), section 40(b), section 184, section 184(5), section 185, section 194T of the Income Tax Act 1961. It is reported as Section 28(v) inserted by the Finance Act 1992 with effect from 1 April 1993 (footnote 50 on the Department's Year 2009 page for section 28); text of both provisions as in force for assessment year 2025-26, read from the Department's Year 2025 section pages. This is the line that decides most partner-side disputes, and it has three practical edges. First, the Explanation to section 10(2A) does not exempt the partner's share of the book profit — it exempts an amount bearing to the total income of the firm the same proportion as his share in the profits under the deed bears to those profits. Where the firm's total income differs from its book profit, the exempt figure differs from the credit in the capital account, and the difference is not automatically taxable or exempt; it has to be reasoned. Second, the exemption is conditional on the firm being separately assessed as such, so if section 185 or section 184(5) has been applied to the firm the foundation of section 10(2A) is gone. Third, the proviso to section 28(v) prevents the same rupee being taxed twice: where remuneration or interest has been disallowed to the firm under section 40(b), the partner's income under section 28(v) is adjusted to that extent — but it is an adjustment the partner has to claim and evidence from the firm's assessment, not one that happens by itself. If it applies to you, the first step is this: Separate the receipt into its heads before answering the notice: share of profit on one side, interest and remuneration on the other. Only the first can be exempt.
A partner's receipts from his firm fall into two classes with quite different treatment. His share in the firm's income is dealt with by section 10(2A), which is a clause in the list of incomes not included in total income. His interest, salary, bonus, commission and remuneration are dealt with by section 28(v), which is a charging clause under the head 'Profits and gains of business or profession'. Section 40(b) governs what the firm may deduct in respect of the second class, and sections 184(5) and 185 govern what happens to both classes when the firm is not assessed as a firm. The matter was decided on 1993-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Section 10(2A) exempts, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. The Explanation fixes the computation: the share is an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits, notwithstanding anything contained in any other law. Section 28(v) charges as business income any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by a partner of a firm from such firm. Its proviso provides that where any such sum, or any part of it, has not been allowed to be deducted under clause (b) of section 40, the income under clause (v) shall be adjusted to the extent of the amount not so allowed to be deducted. Sections 184(5) and 185 both close the circle in the same words: where the firm is so assessed that no deduction for interest, salary, bonus, commission or remuneration to a partner is allowed, those sums shall not be chargeable to income-tax under clause (v) of section 28.
The structure avoids double taxation in both directions. The firm's income has already borne tax in the firm's hands, so the partner's share of it is left out of his total income — but only his share of the firm's total income, computed by the deed ratio, and only where the firm has actually been assessed as a firm. Remuneration and interest, by contrast, have been deducted in computing the firm's income, so they are charged in the partner's hands under section 28(v). Where the deduction has been denied to the firm under section 40(b), the amount has already borne tax at the firm level, and the proviso to section 28(v) removes it from the partner's income. Where the firm is not assessed as a firm at all, sections 184(5) and 185 deny the deduction to the firm and, in the same breath, take the sums out of section 28(v) in the partner's hands. In the words reproduced by the source cited on this page: "Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted"
It was decided by the CBDT Circulars & Instructions on 1993-04-01 and is reported as Section 28(v) inserted by the Finance Act 1992 with effect from 1 April 1993 (footnote 50 on the Department's Year 2009 page for section 28); text of both provisions as in force for assessment year 2025-26, read from the Department's Year 2025 section pages. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(2A), section 28(v), section 40(b), section 184, section 184(5), section 185, section 194T, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Section 10(2A) exempts, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. The Explanation fixes the computation: the share is an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits, notwithstanding anything contained in any other law. Section 28(v) charges as business income any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by a partner of a firm from such firm. Its proviso provides that where any such sum, or any part of it, has not been allowed to be deducted under clause (b) of section 40, the income under clause (v) shall be adjusted to the extent of the amount not so allowed to be deducted. Sections 184(5) and 185 both close the circle in the same words: where the firm is so assessed that no deduction for interest, salary, bonus, commission or remuneration to a partner is allowed, those sums shall not be chargeable to income-tax under clause (v) of section 28. It arises in Capital Gains Exemptions, Assessment & Scrutiny and Deductions & Disallowances matters, on section 10(2A), section 28(v), section 40(b), section 184, section 184(5), section 185, section 194T of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Compute the section 10(2A) figure by the Explanation — total income of the firm multiplied by the partner's share in the profits under the deed divided by those profits — and reconcile it to the credit in the capital account rather than assuming they are the same. Confirm that the firm was in fact separately assessed as a firm for that year; if section 185 or section 184(5) was applied, section 10(2A) does not operate and section 28(v) does not charge the interest or remuneration either. Where the firm's assessment disallowed part of the remuneration or interest under section 40(b), obtain the firm's assessment order and claim the corresponding reduction under the proviso to section 28(v) in the partner's return or in the appeal. For years from AY 2025-26 onwards, check the section 194T credit as well — the firm now deducts tax at ten per cent on these payments, and the partner's section 28(v) income and the Form 26AS credit should agree.
Still good law. Sections 10(2A), 28(v), 184 and 185 were read this pass from the Department's Year 2025 section pages, which are the most recent versions published there. No amendment to section 10(2A) or section 28(v) after that version was found on the pages read. Judicial treatment of the Explanation to section 10(2A) was not searched this pass, so no case law is cited here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Statutory entry, not a decision. 'tier' is set to 'cbdt' because the library's fixed tier vocabulary has no value for a statutory entry; the source is the Income-tax Department's own section pages. 'decided_on' is the commencement of section 28(v), 1 April 1993, not a date of decision; that date is footnote 50 on the Department's Year 2009 page for section 28, 'Inserted by the Finance Act, 1992, w.e.f. 1-4-1993'. Section 10(2A) and its Explanation were read from the Department's Year 2025 page for section 10, /w/section-10-65, and cross-checked against its Year 2024 (No. 2) page, /w/section-10-64; the two are identical. Section 28(v) and its proviso were read from the Department's Year 2025 page for section 28 and cross-checked against the Year 2018 page; again identical. Neither Year 2025 page carries a footnote against clause (2A) or clause (v). The insertion date of section 10(2A) could not be confirmed from a footnote this pass and is deliberately not stated: an attempt to read it off the Department's Year 2009 page for section 10 returned an insertion attribution that conflicts with the section 28(v) footnote for the same legislative recast, so it was discarded rather than repeated. A later pass should read that footnote verbatim. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Section 10(2A) exempts, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. The Explanation fixes the computation: the share is an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits, notwithstanding anything contained in any other law. Section 28(v) charges as business income any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by a partner of a firm from such firm. Its proviso provides that where any such sum, or any part of it, has not been allowed to be deducted under clause (b) of section 40, the income under clause (v) shall be adjusted to the extent of the amount not so allowed to be deducted. Sections 184(5) and 185 both close the circle in the same words: where the firm is so assessed that no deduction for interest, salary, bonus, commission or remuneration to a partner is allowed, those sums shall not be chargeable to income-tax under clause (v) of section 28.
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