How to Calculate Partner’s Remuneration in LLP (With Limits, Formula and Examples)

Paying yourself a salary out of your own LLP sounds simple until someone asks how much of it is deductible. The LLP Act lets partners agree on almost any remuneration they like. Income-tax law doesn’t. It caps what the LLP can claim as an expense, and anything above the cap is added back to the LLP’s taxable profit.

This guide covers how the cap works for FY 2026-27, how to work out book profit, what the TDS rule on partner payments means for you, and how to word your LLP agreement so the deduction holds up. Every example uses rupee figures, so you can follow the arithmetic with your own numbers.

An LLP can deduct remuneration paid to its working partners up to the higher of ₹3,00,000 or 90% of book profit on the first ₹6,00,000 of book profit, plus 60% of book profit above ₹6,00,000. The limit covers all working partners together, not each one separately. Interest on capital is a separate payment, capped at 12% a year.

What Is a Partner’s Remuneration in an LLP?

A partner’s remuneration is what an LLP pays a partner for work done in the business. It can be a salary, bonus, commission or any similar payment, whatever the agreement calls it. It is different from the partner’s share of profit, which rewards ownership. It is also different from interest on capital, which rewards the money put in.

It can be a fixed monthly amount, a percentage of profit, or a mix of both. For tax, the label doesn’t matter. What matters is that the payment follows the agreement and stays within the statutory limit.

How Is Partner Remuneration Calculated in an LLP?

Partner remuneration in an LLP is generally calculated based on the terms of the LLP agreement and the limits prescribed under the Income Tax Act. For tax purposes, remuneration paid to working partners is deductible subject to the applicable conditions and statutory limits. The LLP should maintain proper accounts and ensure that the remuneration is authorised by the LLP agreement and supported by appropriate records.

Businesses planning LLP registration in India should clearly specify partner remuneration, profit-sharing ratios and related financial terms in the LLP agreement.

Which Laws Govern Partners’ Remuneration?

Two laws apply at the same time.

The LLP Act, 2008 leaves the commercial terms to the partners. Under Section 23, the partners’ rights and duties are set by the LLP agreement. If the agreement is silent, the default rules in the First Schedule of the Act do not give a partner any right to be paid for working in the business.

Income-tax law decides how much of the payment the LLP can deduct. For FY 2025-26 and earlier, that is Section 40(b) of the Income-tax Act, 1961. From tax year 2026-27, the Income-tax Act, 2025 applies, and the same rules sit in Section 35(e). The limits did not change in the move.

Conditions for Claiming Remuneration as a Deduction

1. The recipient must be a working partner. This means an individual who is actively engaged in conducting the affairs of the business. A sleeping partner, a company or another LLP cannot qualify.
2. The LLP agreement must authorise the payment. It should state the amount or the method of calculating it.
3. The payment must follow the agreement and relate to a period after the date of the agreement that authorises it.
4. The amount must stay within the statutory limit.

If any condition fails, the amount is disallowed in the LLP’s hands. The LLP can still pay it to the partner, but it gets no tax deduction.

Working Partner vs Designated Partner

Every LLP needs at least two designated partners, but holding that title does not make someone a working partner. The designation carries compliance responsibility under the LLP Act. If you want to understand that role better, read who is eligible to be an LLP designated partner.

Working-partner status depends on what the person actually does. That could be running operations, handling clients, supervising staff or making business decisions. A partner who has invested money and signs the annual filings but takes no part in daily work is risky to treat as “working”. Record each partner’s role in the agreement or in a partners’ resolution, in case the assessing officer asks.

Maximum Remuneration Allowed (FY 2026-27)

Book profit of the LLP	Maximum deductible remuneration (all working partners together)
Book loss, or the first ₹6,00,000 of book profit	Higher of ₹3,00,000 or 90% of book profit
Balance of book profit above ₹6,00,000	60% of the balance

Many older articles still quote ₹1,50,000 and ₹3,00,000. Those figures applied only until FY 2023-24. The Finance (No. 2) Act, 2024 doubled them from FY 2024-25 (AY 2025-26), and they continue under Section 35(e) of the 2025 Act.

Two things help when you work with this table:

• 90% of book profit beats the ₹3,00,000 floor only once book profit crosses about ₹3.33 lakh. Below that, the ₹3,00,000 floor applies. So even a loss-making LLP can deduct up to ₹3,00,000, provided the agreement allows it.
• For book profit above ₹6,00,000, the maximum is ₹5,40,000 + 60% of the amount above ₹6,00,000.

What Is Book Profit?

Book profit is the net profit in the LLP’s profit and loss account, adjusted under the business-income rules of the Income-tax law. Partners’ remuneration is then added back if it was already charged to the account. Income under other heads, such as house property or capital gains, is taken out.

Interest on capital within the 12% cap stays deducted. Only remuneration is added back.

Step-by-Step Process: How to Calculate Partner’s Remuneration in an LLP

Step 1: Start with net profit from the profit and loss account

Take the net profit after all expenses, including any interest paid to partners.

Step 2: Adjust it under Income-tax rules

Recompute items the tax law treats differently. Depreciation at Income-tax rates and non-deductible expenses are examples. Remove income that belongs under other heads.

Step 3: Add back remuneration already charged

The result is your book profit.

Step 4: Apply the slab

Use the higher of ₹3,00,000 or 90% on the first ₹6,00,000, then 60% on the rest.

Step 5: Check the LLP agreement

The deductible amount is the lower of what the agreement provides and what the law permits.

Step 6: Split it among the working partners

Divide it in the ratio or amounts fixed in the agreement.

Step 7: Deduct TDS and record the entries

See the TDS section below for the rules and the accounting entries.

Example

An LLP has three working partners. It charged ₹12,00,000 as remuneration in its books and ended the year with a net profit of ₹2,00,000.

Particulars	Amount (₹)
Net profit per P&L, after charging remuneration	2,00,000
Add: remuneration charged	12,00,000
Book profit	14,00,000
90% of first ₹6,00,000	5,40,000
60% of balance ₹8,00,000	4,80,000
Maximum deductible remuneration	10,20,000
Remuneration charged	12,00,000
Disallowed	1,80,000
LLP’s taxable business income (before other adjustments)	3,80,000

The ₹1,80,000 can still be paid to the partners. The LLP just cannot deduct it. The ₹10,20,000 limit covers all three partners together. It is not ₹10,20,000 each.

A smaller case: if book profit is ₹2,40,000, 90% is only ₹2,16,000. The ₹3,00,000 floor applies, so the LLP can deduct up to ₹3,00,000.

Interest on Partner’s Capital Is a Separate Limit

Interest on capital has its own rules. It is deductible only if:

• the agreement authorises it,
• it relates to a period after the agreement date, and
• it does not exceed 12% simple interest a year.

Interest can go to working and non-working partners alike. If a partner has ₹10,00,000 in capital and the LLP pays 15%, that is ₹1,50,000. The LLP can deduct only ₹1,20,000, and ₹30,000 is disallowed.

Pay Partners Through the Bank

Paying a partner in cash can cost the LLP its deduction or cause other trouble. Cash payments above ₹10,000 in a day can be disallowed under Section 40A(3), and a person cannot receive ₹2 lakh or more in cash in a day under Section 269ST. Credit remuneration to the partner’s account, and pay it by bank transfer or account-payee cheque. Under the Income-tax Act, 2025, these provisions carry over with new section numbers.

TDS on Partner’s Remuneration: Section 194T

Until 31 March 2025, LLPs paid partners without deducting TDS. That changed on 1 April 2025. Section 194T requires a firm, LLPs included, to deduct 10% TDS on salary, remuneration, commission, bonus and interest paid or credited to a partner. It applies once the total for that partner crosses ₹20,000 in a financial year.

• Whole amount, not the excess: after ₹20,000 is crossed, TDS applies to the entire sum.
• Timing: TDS is due at the earlier of crediting the amount, including to the partner’s capital or current account, or paying it. Leaving the money in the LLP does not avoid TDS.
• No PAN: the rate rises to 20%.
• Not covered: a partner’s share of profit and the repayment of capital.
• Process: the LLP needs a TAN, must file quarterly TDS statements and must issue TDS certificates. The partner claims credit for the TDS in their own return.
• Under the new Act: the same rule continues under Section 393 of the Income-tax Act, 2025.

For example, if ₹3,90,000 of remuneration is credited to a partner, ₹39,000 is deducted, and ₹3,51,000 is paid out. Our team can also handle TDS return filing for your LLP. For a deeper walkthrough, read TDS on partner’s remuneration.

Typical accounting entries:

• On accrual: Dr Partners’ Remuneration A/c, Cr Partner’s Current A/c.
• On deducting TDS: Dr Partner’s Current A/c, Cr TDS Payable A/c.
• On payment: Dr Partner’s Current A/c, Cr Bank A/c.

Tax Treatment in the LLP’s and Partner’s Hands

In the LLP’s hands: remuneration within the limit is a deductible business expense under Section 40(b), or Section 35(e) from FY 2026-27.

In the partner’s hands: remuneration is taxed as business income under Section 28(v), only to the extent the LLP is allowed to deduct it. A partner’s share of profit is exempt under Section 10(2A), or its counterpart in the 2025 Act. The partner pays tax on remuneration at their own slab rate and should include it in their advance tax planning.

How a Partner Reports Remuneration in Their Own Return

A partner reports the allowed remuneration and interest as business income, normally in ITR-3, and pays tax at their slab rate. They should include it when computing advance tax, because only the TDS under Section 194T, if deducted, is credited at the time of filing. The partner’s share of profit is exempt and is not reported as taxable income. Keep a copy of the partnership’s remuneration clause and the TDS certificate (Form 16A) with your records.

Remuneration vs Interest on Capital vs Profit Share

Basis	Remuneration	Interest on capital	Share of profit
What it rewards	Work done	Money invested	Ownership
Who can receive it	Working partners only	Any partner	All partners
Deductible for the LLP	Yes, within the limit	Yes, up to 12%	No
Partner’s tax	Business income (allowed part)	Business income	Exempt
TDS under 194T	Yes	Yes	No

How to Draft the Remuneration Clause in Your LLP Agreement

A vague clause is the most common reason deductions fail. A workable clause looks like this:

“The working partners of the LLP, namely [names], shall be paid remuneration of [₹ amount per month / ___% of book profit] with effect from [date], subject to a maximum of the amount allowable as a deduction under Section 40(b) of the Income-tax Act, 1961 or Section 35(e) of the Income-tax Act, 2025, as amended from time to time. Interest on partners’ capital shall be paid at ___% per annum simple interest, not exceeding 12%.”

Sign the agreement before the period it covers begins. Approving remuneration after the year ends for months already gone is the classic trap. If you are changing an existing agreement, file LLP Form 3 with the Registrar within 30 days of the change. If you are still setting up, our LLP registration service includes a properly drafted agreement.

Common Mistakes to Avoid

• Paying a salary to a partner who is not actively working in the business.
• Having no remuneration clause, or a clause that fixes neither an amount nor a method.
• Applying the limit per partner instead of to all working partners together.
• Using the old ₹1,50,000 slab.
• Letting remuneration and interest credit to partners’ accounts without deducting TDS.
• Backdating an amendment to cover months already passed.

LLPs Cannot Use Presumptive Taxation

An LLP cannot use the presumptive scheme under Section 44AD. Its book profit must come from regular books of account, so keep complete accounts. That is also what makes the remuneration limit workable in the first place.

Filing and Compliance

The LLP claims the deduction in its income tax return, and any disallowance appears in the computation. Where a tax audit applies, the auditor checks the working against the agreement. Our ITR filing team can prepare it. Separately, the LLP must meet its MCA obligations, including Form 8 and the annual return. See our LLP annual compliance service for support. For the full list of LLP filings, see post-incorporation compliances for an LLP.

FAQs

1. What is the maximum partner remuneration in an LLP for FY 2026-27?

It is the higher of ₹3,00,000 or 90% of book profit on the first ₹6,00,000, plus 60% of book profit above ₹6,00,000. The limit applies to all working partners together.

2. Can an LLP pay remuneration to a non-working partner?

It can if the agreement allows, but the LLP gets no tax deduction. The entire amount is disallowed.

3. Can a designated partner receive remuneration?

Yes, if they are a working partner and the agreement authorises it. The title alone is not enough.

4. Is TDS deducted on partner remuneration?

Yes. From 1 April 2025, Section 194T requires 10% TDS once payments to a partner cross ₹20,000 in a financial year.

5. Is remuneration taxable in the partner’s hands?

Yes. It is business income under Section 28(v), to the extent the LLP is allowed to deduct it. Share of profit is exempt.

6. Can an LLP in loss pay remuneration?

Yes. In a loss year, up to ₹3,00,000 is deductible if the agreement authorises it.

7. Is the limit per partner?

No. It is a combined limit for all working partners.

Conclusion

Partner remuneration in an LLP works best when three things line up: a clear clause in the agreement, genuine work by the partner receiving it, and a payment kept within the statutory limit. Add TDS under Section 194T and the right records, and your deduction is far less likely to be questioned. If you want a second pair of eyes on your agreement or your working, our team can help.

Related Reading

• LLP Registration for Two Co-Founders
• LLP Full Form: Meaning, Features and Benefits