LLP Partners' Remuneration: What the Agreement Must Say and How It Is Taxed

You run the LLP. You bring in the clients, you sign the cheques, you stay late. At the end of the month you transfer yourself a salary, the way any employee gets paid. Then your accountant tells you the LLP cannot deduct it. Not part of it — all of it. The reason is almost always the same: the LLP agreement never said you could be paid.

An LLP can pay a working partner a salary, bonus or commission, but only if the LLP agreement authorises the payment. Only the part within the tax limit is deductible: the higher of ₹3,00,000 or 90% of book profit on the first ₹6,00,000, plus 60% of the rest. The partner is taxed on it; the profit share stays exempt.

Think of it like a chef who co-owns the restaurant. The profit share is the return on owning the place. The salary is the pay for cooking. Tax law lets the restaurant deduct the cooking pay, but only up to a limit — and only if the arrangement was written down before the cooking started. Get the paperwork right and the deduction holds. Get it wrong and the whole payment becomes a private matter between the LLP and the partner, with no tax benefit at all.

What counts as partner remuneration — and what doesn't

Remuneration is what the LLP pays a partner for work. A fixed monthly salary, a bonus on hitting a target, a commission on a deal the partner closed — the label does not matter. Tax law treats them all the same way.

Three payments look similar and are taxed differently, so keep them apart in your books:

Payment	Rewards	Who can receive it	Deductible for the LLP?	Tax in the partner's hands
Remuneration	Work done	Working partners only	Yes, within the limit	Business income
Interest on capital	Money invested	Any partner	Yes, up to 12% a year	Business income
Share of profit	Ownership	All partners	No	Exempt

A working partner is an individual who is actually engaged in running the business — handling clients, supervising staff, making decisions. A sleeping partner who only put in money cannot draw deductible remuneration. Neither can a partner that is a company or another LLP. Only a person doing the work qualifies, and the agreement has to name them.

Being a designated partner does not make you a working partner. The designation is a compliance role under the LLP Act. Plenty of designated partners do no daily work at all. What matters is what the person actually does, and whether the agreement records it. If the assessing officer asks, a one-line role description in the agreement or a partners' resolution is worth more than a title.

Why the agreement decides everything

Two laws govern the same payment, and they do different jobs. The Limited Liability Partnership Act, 2008 leaves the commercial terms to the partners. Section 23 says the partners' rights and duties are set by the LLP agreement. If the agreement says nothing about pay, the default rules in the First Schedule give a partner no right to remuneration at all.

Income-tax law then decides how much of the payment the LLP can deduct. But the deduction is only available for a payment the agreement authorised. A clause that fixes neither an amount nor a method of working it out is as bad as no clause — the tax department will not guess what you meant.

A workable clause names five things. Check yours against this list:

• Which partners are working partners, by name — not "the partners"
• What each one is paid — a fixed monthly amount, a percentage of book profit, or both
• Whether commission or bonus is included, and how it is calculated
• The date from which the payment starts
• That the total stays within the amount allowable 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

That last line matters more than it looks. It ties the agreement to the law as it stands, so a future change in the limit does not leave your clause paying an amount the law no longer allows. A clause that works looks something 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%."

If your agreement is silent today, fix it before the next payment, not after the year ends. Remuneration approved after the year for months already gone is the classic trap — the deduction only covers periods after the agreement that authorises it. Our LLP agreement clauses guide covers the rest of the document, and the LLP registration service includes a properly drafted agreement for new LLPs.

How much can the LLP deduct?

The limit applies to all working partners together, not to each one. For income of financial year 2025-26 and earlier, it sits in 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 — the Finance (No. 2) Act, 2024 doubled them from FY 2024-25, and they carry forward unchanged.

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

Two points in that table catch people out. First, 90% of book profit beats the ₹3,00,000 floor only once book profit crosses about ₹3.33 lakh. Below that, the floor applies. Second, the limit is a ceiling on the deduction, not on the payment. The LLP can pay more — it just cannot deduct the excess.

Here is the arithmetic on a real shape of business. An LLP has two working partners and a book profit of ₹25,00,000. The agreement pays each partner ₹9,00,000 — ₹18,00,000 in total.

Particulars	Amount (₹)
90% of first ₹6,00,000 of book profit	5,40,000
60% of balance ₹19,00,000	11,40,000
Maximum deductible remuneration	16,80,000
Remuneration actually paid	18,00,000
Disallowed — added back to the LLP's income	1,20,000
LLP's taxable business income (before other adjustments)	8,20,000

Tax on that ₹8,20,000 at the LLP's flat 30% rate, plus 4% cess, comes to ₹2,55,840. The ₹1,20,000 can still be paid to the partners. The LLP simply gets no deduction for it.

The loss year works the other way round, and founders miss it. Suppose the LLP ends the year with a net loss of ₹4,00,000 after charging ₹3,00,000 of remuneration. Book profit is a loss of ₹1,00,000 — the loss plus the remuneration added back. The limit is the higher of ₹3,00,000 or 90% of a negative number, so the ₹3,00,000 floor applies and the whole ₹3,00,000 stays deductible. A bad year does not take the deduction away.

What is book profit, exactly?

Book profit is the net profit in the LLP's profit and loss account, adjusted under the business-income rules of the Income-tax Act. Three adjustments do most of the work:

• Add back any remuneration already charged to the profit and loss account — you cannot measure the limit against a profit that already has the payment in it
• Take out income that belongs under other heads, such as house property or capital gains — the limit runs on business profit only
• Leave interest on capital alone if it is within the 12% cap — only remuneration is added back

Work the number from regular books of account. An LLP cannot use the presumptive taxation scheme under section 44AD — the scheme's definition of an eligible assessee expressly leaves LLPs out — so there is no shortcut around the books. That is also what makes the remuneration limit workable in the first place: the book profit has to exist on paper before anyone can apply a percentage to it.

Remuneration or profit share — which costs less tax?

Every rupee paid as remuneration is a rupee that leaves the LLP's taxable profit and lands in the partner's hands instead. The LLP pays a flat 30% plus surcharge and cess. The partner pays tax at their own slab rate. So the whole question is whose rate is lower — and the answer changes with the partner.

Take an LLP with ₹20,00,000 of profit before any partner payment. If it all goes out as profit share, the LLP pays 30% plus 4% cess — ₹6,24,000 — and the partners receive the rest tax-free. Now pay ₹10,00,000 of it as remuneration instead, well within the limit. The LLP's tax falls to ₹3,12,000. The partner pays tax on the ₹10,00,000 at their own marginal rate.

Route	LLP's tax	Partner's tax on ₹10,00,000	Total tax
All as profit share	₹6,24,000	Nil — exempt	₹6,24,000
₹10,00,000 as remuneration, partner at 30% marginal rate	₹3,12,000	₹3,12,000	₹6,24,000
₹10,00,000 as remuneration, partner at 10% marginal rate	₹3,12,000	₹1,04,000	₹4,16,000

The partner in the 30% bracket saves nothing — the tax just changes address. The partner in the 10% bracket saves about ₹2,08,000. The exact saving depends on the partner's total income, which regime they are in, and any rebate, so run the numbers on the real return before fixing the split. The point is the direction: remuneration is worth real money when the partner's marginal rate sits below the LLP's flat 30%, and worth nothing on tax alone when it doesn't. Our five ways partners take money out of an LLP guide puts this choice next to interest, rent and loans, so you can see the whole menu at once.

What about TDS on partner payments?

Until 31 March 2025, an LLP paid its partners without deducting any tax at source. That ended on 1 April 2025. Section 194T requires the LLP to deduct 10% on salary, remuneration, commission, bonus and interest paid or credited to a partner, once the year's total to that partner crosses ₹20,000.

Three features of the rule surprise first-timers. First, once the ₹20,000 threshold is crossed, TDS applies to the whole amount, not just the excess. Credit ₹3,90,000 of remuneration to a partner and the deduction is ₹39,000. Second, the trigger is the earlier of crediting the amount or paying it — and crediting includes a journal entry to the partner's capital or current account. Leaving the money inside the LLP does not avoid TDS. Third, if the partner has no PAN on file, the rate rises to 20%.

The compliance rhythm is the normal TDS rhythm. The LLP needs a TAN. Tax deducted in a month is deposited by the 7th of the next month — 30 April for March deductions — through Challan ITNS 281. The quarterly statement, Form 26Q, falls due on 31 July, 31 October, 31 January and 31 May. Form 16A goes to each partner within 15 days of the statement's due date, so the partner can claim the credit in their own return.

One renumbering to carry into the new year: from 1 April 2026 the same TDS lives in section 393(3) of the Income-tax Act, 2025, and from the April–June 2026 quarter the statement is filed in Form 140 instead of Form 26Q, with Form 131 replacing Form 16A. The rate stays 10% and the threshold stays ₹20,000. Quarters up to March 2026 stay on the old forms.

How does the partner report it?

In the partner's hands, remuneration is taxed as business income under section 28(v) — but only to the extent the LLP was allowed to deduct it. The share of profit is exempt under section 10(2A). The partner normally reports the allowed remuneration and interest in ITR-3 and pays tax at their own slab rate, and should build it into advance tax planning, because only the TDS already deducted is credited at filing time. Keep the remuneration clause and the TDS certificate with your records.

What about the excess — the ₹1,20,000 in the worked example that the LLP could not deduct? Section 28(v) taxes remuneration only so far as it was allowed as a deduction to the firm, so the disallowed part is not taxed again as remuneration in the partner's hands. In practice it sits inside the profit share, which is exempt. I should be straight with you: some guides say the partner is taxed on the full amount received. That reading does not follow the section's wording. It is a point where guides disagree, so confirm it with your CA when the return is prepared rather than taking either version on trust.

The ITR-5 guide for LLPs covers the LLP's side of the same year — the 30% rate, the audit thresholds, and the 31 July and 31 October return dates.

Does GST apply to partner remuneration?

No — not on the remuneration itself. The department's own FAQ, issued when GST began in June 2017, said salary paid by a partnership firm to its partners is not liable to GST. The Supreme Court's older reasoning in CIT v. R.M. Chidambaram Pillai points the same way: a partner's salary is a share of profit under another name, and a person cannot render a service to themselves. No GST invoice is needed for the payment.

One caution, because the law here is not perfectly tidy. GST law treats a firm and its partners as distinct persons in some contexts, and advance rulings have differed on related questions. So the clean answer covers remuneration for work done as a partner. If a partner also supplies a genuinely separate service to the LLP — a distinct consultancy, say, billed on its own terms — that is a different question and deserves its own advice.

Can you change the amount mid-year?

Yes — by executing a supplementary LLP agreement and filing it in Form 3 with the Registrar within 30 days of the change. The new terms apply only from the effective date written in the deed. Backdating an amendment to cover months already passed is the most common way this goes wrong: the deduction for those months fails because no agreement authorised the payment when the months ran.

So the sequence is simple and unforgiving. Decide the new amount. Sign the supplementary agreement. File Form 3 within 30 days. Pay at the new rate from the effective date. If you are setting the amount for the first time, do it before the period it covers begins.

Five mistakes that cost LLPs the deduction

• Paying a salary to a partner who does no daily work — the whole payment is disallowed, however genuine the partner's investment
• Having no remuneration clause, or one that fixes neither an amount nor a method — the tax department will not fill the gap for you
• Applying the limit per partner instead of to all working partners together — the ₹16,80,000 in the example above was for two partners combined
• Still using the old ₹1,50,000 slab — those figures applied only until FY 2023-24
• Letting remuneration and interest credit to partners' accounts without deducting TDS — the credit itself is the trigger, even if no cash moves

One more, because it bites at audit time: where turnover crosses ₹40 lakh or contribution crosses ₹25 lakh, the LLP's accounts must be audited, and the auditor checks the remuneration against the agreement. A clause that does not match the payments is the first thing they flag. Keep the vouchers, the bank transfers and the agreement in one place. The annual filing service for LLPs covers Form 8 and Form 11 for the same year, and the compliance fee calculator will give you the filing costs before you start.

Frequently asked questions

Can a designated partner receive remuneration?
Yes, if they are genuinely a working partner and the agreement authorises it. The title alone is not enough — what counts is the work the person actually does in the business.

Can a body-corporate partner draw remuneration?
No. Only an individual who is actively engaged in the business can be a working partner. A company or another LLP that is a partner can receive interest on capital and a share of profit, but not deductible remuneration.

What happens if the LLP agreement is changed after the year ends?
The new terms apply only from the effective date in the supplementary agreement. Remuneration for months before that date stays unauthorised, and the deduction for those months fails. File Form 3 within 30 days of the change.

Does the LLP pay TDS if it only credits remuneration and never pays cash?
Yes. Section 194T is triggered at the earlier of credit or payment, and crediting includes a journal entry to the partner's capital or current account. The TDS is due even though no money left the bank.

Is the partner's remuneration shown anywhere in the LLP's annual filings?
Not as a separate disclosure in Form 11, but the auditor — where an audit applies — verifies the remuneration against the agreement, and the amounts flow through the profit and loss account into Form 8. The agreement is the document that has to match.

Partner remuneration works 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 the deduction is far less likely to be questioned. If the clause in your agreement is vague, or missing entirely, that is the first thing to fix — everything else in this guide hangs off it.