Remuneration allowed to Limited Liability Partnership

  • November 08, 2022
  • Registrationwala
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Limited Liability Partnership (LLP) is the form of the company having the features of partnership firm and company both. One of the major benefits of LLP over partnership firm is that the liability of members of partnership firm is limited to their only.

For rewarding the active participation of the members of LLP in the operation of LLP the remuneration is normally payable to the partners who are actively contributing to the operation of the Limited Liability Partnership. For rewarding their work and efforts alike any employee, the remuneration is payable to them.

Majorly the income of the partners of LLP is from the following three sources i.e. by the way of remuneration, interest, and shares in profits. Interest is paid to partners who have introduced the capital whether by way of cash or any other mode. Further profit is the amount distributed among the partners as a return from the profit earned by the LLP with the capital introduced by the Partners in LLP. In addition to this, remuneration includes any salary, bonus, commission paid to the partner of the LLP.

Person eligible for receiving remuneration

Every working, non-working and sleeping partner authorized under the LLP agreement is eligible for obtaining remuneration from the LLP. However there is a limit on the amount of remuneration to be paid to each partner. The maximum permitted limit is as follows-

On first 3 lakhs of Book profit or loss Rs. 1,50,000 or 90% whichever is more.

On Balance 60% of the profits.

Taxability of the remuneration received

The remuneration received by the partners is taxable from LLP will be taxable in the hands of Partners as Business Income. Further, it will be allowed as the deduction for the LLP if the remuneration paid to such working partner is authorized by the LLP Agreement and the amount of remuneration does not exceed the specified limit.

Interest on Capital Introduced: The interest received by the partners is taxable in the hands of the partners. While the interest paid to the partners it is allowed as the deduction of the Limited liability Partnership. However, the maximum interest allowed under Income Tax Act is simple interest at the rate 12% p.a. Any amount in excess of 12% is disallowed under the Act.

The share of Profit: The share of profit received by the partners, whether being working or Non-working Partner is exempted under Section 10(2A) of Income Tax Act.

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