LLP Partner Remuneration: Know its Limit and Calculation Method

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LLP Partner Remuneration: Know its Limit and Calculation Method

Preface: This post was originally published in 2022 and has been updated on October 22, 2025, to provide you with the most current and accurate information.

LLP stands for Limited Liability Partnership. It is one of the most popular business models in India because it offers limited liability protection to its partners. At least two partners are required for LLP incorporation in India. 

When incorporating an LLP, determining the LLP partner remuneration is essential. In this blog post, we shall discuss LLP remuneration to the partners, remuneration limit, calculation method and more.

What is LLP Partner Remuneration?

An LLP partner’s remuneration refers to the salary, bonus or commission paid to the partner by the Limited Liability Partnership firm. For tax purposes, the remuneration to partners in LLP is regarded as a business expense to the firm, subject to provisions laid down in Section 40(b) of the Income Tax Act, 1961. 

Under this section, conditions and limits are outlined for deduction of remuneration paid to partners of a firm. The maximum tax-deductible remuneration allowed to partners in LLP depends on the firm's book profit and is calculated using slabs. 

The limits for deducting partner remuneration under Section 40(b) of the Income Tax Act were revised under the 2024 Budget and became applicable from Assessment Year 2026-27 (Financial Year 2025-26) onwards. Any amount that’s paid above these limits is not tax-deductible for the LLP firm. 

What is TDS on LLP Partner Remuneration?

According to Section 194T, Tax Deducted at Source (TDS) is subject to deduction at a rate of 10% on any salary, remuneration, bonus or commission payments made to a partner by a firm when the total payments in a financial year exceed Rs. 20,000.

The provisions of Section 194T were introduced as part of the Finance (No. 2) Bill, 2024. They became effective from 1 April 2025 onwards. 

Is Deduction in LLP Remuneration to Partners Allowed?

Salaries and remuneration paid to partners can be deducted by LLPs as an expense for tax purposes, as long as this is authorized by the limited liability partnership agreement. However, Section 40(b) specifies a maximum limit on the deduction for interest and remuneration that can be claimed. This deduction is not permitted if the partnership firm opts to pay taxes on a presumptive basis under Sections 44AD or 44ADA of the Act.

Below, we have provided you with the table that highlights maximum permissible limit u/s 40(b). It is important to note that this limit is applicable on the total salary of all the LLP partners rather than per individual partner:

Book Profits’ Calculation

The book profit is calculated in the following manner:

Note: Upon calculating the book profit, the maximum allowable deduction for partner remuneration is determined on the basis of the earlier-mentioned slabs (i.e., (i) On the first Rs. 6,00,000 of book profit: Rs. 3,00,000 or 90% of the book profit, whichever is higher. (ii) On the remaining balance of book profit: 60% of the book profit amount.)

Partners Remuneration Calculation: Example

Here is an example that explains how the partners remuneration is calculated.:

Step 1: Use Book Profit Calculation Formula

First, calculate the book profit using the formula below:

• Net Profit as per P&L accounts: Rs. 8,00,000

• Add: Remuneration paid to partners: + Rs. 2,00,000

• Add: Interest paid to partners: + Rs. 50,000

• So, the Book Profit is: Rs. 10,50,000 

Step 2: Apply Remuneration Slab u/s 40(b)

Now, you must apply the remuneration slab as per Section 40(b):

• On the first Rs. 6,00,000 of book profit: The deductible amount is the higher of Rs. 3,00,000 or 90% of the first Rs. 6 lakh of book profit.

So, calculation will be as follows: 

• 90% of Rs. 6,00,000 = Rs.5,40,000

• Higher of Rs. 3,00,000 or Rs. 5,40,000 is Rs. 5,40,000.

• On the remaining book profit: The deductible amount is 60% of the book profit balance.

• Remaining Book Profit: Rs. 10,50,000 (total) - Rs. 6,00,000 (first slab) = Rs. 4,50,000

So, calculation will be as follows:

• 60% of Rs. 4,50,000 = Rs. 2,70,000 

Step 3: Calculate Maximum Allowable Remuneration

The maximum allowable remuneration is the total of the amounts calculated i.e., Rs. 5,40,000 + Rs. 2,70,000 = Rs. 8,10,000. 

You can use the LLP partner remuneration calculator, provided by the Income Tax Department of India, if you do not want to calculate the remuneration manually. 

Conclusion

LLP partner remuneration is governed by Section 40(b) of the Income Tax Act 1961. Under this section, conditions and limits are laid down for deduction of remuneration paid to partners of a firm. Want to register an LLP in India or need assistance in fulfilling compliance requirements in a timely manner? If yes, then connect with our LLP experts at Registrationwala. 

Frequently Asked Questions (FAQs)

Q1. What is maximum remuneration to partners in an LLP?

A. LLP partner remuneration limit depends on the LLP’s book profit.

Q2. Which Section of the Income Tax Act 1961 governs remuneration paid to the LLP partners?

A. The Section 40(b) of the Income Tax Act 1961 governs the remuneration paid to the LLP partners.

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