Remuneration to LLP Partners: Limits, Interest and TDS
Short answer: An LLP can pay remuneration to its working partners, but for income tax it can deduct it only if the LLP agreement authorises it, and only up to the Section 40(b) limit: on the first ₹6 lakh of book profit (or a loss), the higher of ₹3 lakh or 90% of book profit; on the rest, 60%. Interest on partners’ capital is deductible up to 12% a year. From 1 April 2025 the LLP must also deduct TDS at 10% under Section 194T once payments to a partner cross ₹20,000 in a year.
What the LLP agreement must say
Remuneration is deductible only when it is paid to a working partner (an individual actively engaged in the business), is authorised by the LLP agreement and is worked out as the agreement says. It cannot be claimed for a period before the clause was added. If your current agreement is silent, the clause is added by a supplementary agreement filed in Form 3. See the LLP agreement format.
The Section 40(b) limit
| Book profit | Maximum deductible remuneration (all working partners together) |
|---|---|
| Loss, or up to ₹6 lakh | ₹3 lakh or 90% of book profit, whichever is higher |
| Above ₹6 lakh | The amount above, plus 60% of book profit beyond ₹6 lakh |
Example: book profit of ₹10 lakh. On the first ₹6 lakh, 90% is ₹5.4 lakh, which is higher than ₹3 lakh. On the remaining ₹4 lakh, 60% is ₹2.4 lakh. The total deductible remuneration is ₹7.8 lakh, shared among the working partners as the agreement says. These limits apply from FY 2024-25; earlier years used lower amounts.
Interest on partners’ capital
Interest paid to partners on their capital is deductible up to 12% a year (simple interest), again only if the LLP agreement provides for it. Interest above 12% is disallowed in the LLP’s hands.
How the partner is taxed
Remuneration and interest allowed to the LLP are taxed in the partner’s hands as business income. A partner’s share of the LLP’s profit is exempt in the partner’s hands, because the LLP has already paid tax on it at the flat LLP rate; see the LLP tax rate.
TDS on payments to partners (Section 194T)
From 1 April 2025, an LLP deducts TDS at 10% on salary, remuneration, commission, bonus or interest paid or credited to a partner, once the total for that partner exceeds ₹20,000 in the financial year. Credits to a partner’s capital or current account count as well. Plan year-end entries so the TDS is deducted and deposited on time.
Which tax law applies?
The sections above are from the Income-tax Act, 1961, which governs FY 2025-26. From FY 2026-27 the Income-tax Act, 2025 applies and the section numbers change, so check the corresponding provision with your CA when planning remuneration for 2026-27. See income tax for LLP.
Frequently asked questions
Is remuneration to LLP partners allowed as a deduction?
Yes, for working partners, if the LLP agreement authorises it and within the Section 40(b) limit on book profit.
What is the maximum remuneration an LLP can deduct?
On the first ₹6 lakh of book profit or a loss, the higher of ₹3 lakh or 90% of book profit; on the balance, 60% of book profit.
Is TDS deductible on remuneration paid to LLP partners?
Yes. From 1 April 2025, Section 194T requires TDS at 10% once payments to a partner exceed ₹20,000 in the financial year.
What is the maximum interest on capital an LLP can pay partners?
12% a year, simple interest, if the LLP agreement provides for it. Interest above 12% is not deductible.
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