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All about Remunerations to Partners in an LLP

Ever wondered how much remuneration or interest to partner is allowable in a Limited Liability Partnership (LLP)? Yes, then this article is definitely for you.

So, without further ado, let us get started with the article.

  1. Interest payable to partners shall not exceed 12% per annum.

  2. Remuneration payable to partners shall not exceed the following limit:

  • On first Rs. 3 Lakhs of book profit or in case of loss — Rs. 1,50,000 or 90% of book profit, whichever is more.

  • On the balance of the book profit — 60% of book profit.

Following sum paid by an LLP to its partners shall not be allowed as deduction to such firm:

1) Salary, bonus, commission, or remuneration paid to non-working partners;

2) Remuneration or interest paid to the partners which is not in accordance with the terms of the partnership deed;

3) If remuneration or interest paid to the partners are in accordance with the terms of the partnership deed but they relate to any period prior to the date of the partnership deed;

4) Interest paid to partners exceeds 12% per annum;

5) Remuneration paid to partners is in accordance with the terms of the partnership deed but it exceeds the following permissible limit:

  • On first Rs. 3 Lakhs of book profit or in case of loss — Rs. 1,50,000 or 90% of book profit, whichever is more;

  • On the balance of the book profit — 60% of book profit

Note: ‘Book profit’ means the net profit computed under the head ‘Business or Profession’ as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.

See, that wasn’t too tough. We hope that we were able to shed some light on the provisions related to remuneration payable to partners as per The Income Tax Act, 1961. Do you have more questions? Are you looking for Chartered Accountants in Bangalore? Then feel free to reach out to us.