The question of whether partners can take salary from an AOP (Association of Persons) is one of the most misunderstood areas in Pakistan’s tax and business law. Legally, under Section 13(a) of the Partnership Act, 1932, a partner is not entitled to receive any salary or remuneration for managing the business unless it is specifically agreed in the partnership deed. This means partners can draw salary only if there is a clear contractual provision.

However, the tax treatment tells a different story. Under Section 21(j) of the Income Tax Ordinance, 2001, any salary, commission, or remuneration paid by an AOP to its members is strictly disallowed as a deductible expense. As a result, such payments are treated as appropriation of profit rather than business expenditure.

Therefore, while partner salary is legally permissible, it offers no tax benefit and may increase the overall tax liability of the AOP.