Partner Remuneration Calculator: Limits, TDS Rules & Interest on Loans Explained

When structuring compensation in a Limited Liability Partnership (LLP) or traditional partnership firm, partners may receive remuneration, capital interest, loan interest, and profit share. However, to claim these amounts as allowable business deductions under the Income Tax Act, specific conditions must be met.

This article serves as a complete guide on how to use a Partner Remuneration Calculator effectively—covering the latest tax limits, TDS provisions, and the treatment of partner loans.

1. Partner Remuneration – What It Covers

Partner remuneration includes:

• Monthly or annual salaries

• Commission, bonuses, or any form of working compensation

• Payments made only to working partners, as authorized in the LLP/partnership deed

This is distinct from share of profit, which is tax-exempt, and interest on capital or loans, which has capped limits.

2. Allowable Remuneration as per Section 40(b)

Remuneration is deductible only if:

• The partnership deed authorizes it

• It is paid exclusively to working partners

• It complies with the income-based caps defined under Section 40(b)

Income Tax Slabs for Partner Remuneration

Sample Calculation Using Partner Remuneration Calculator

If book profit = ₹8,00,000

• First ₹3,00,000: 90% = ₹2,70,000

• Remaining ₹5,00,000: 60% = ₹3,00,000
  Total Allowable Remuneration = ₹5,70,000

Any excess will be disallowed in tax computation.

Amendment: FY 2025-26 Onwards

• On the first ₹6,00,000 of book profit or in case of a loss: Maximum deduction is ₹3,00,000 or 90% of book profit, whichever is higher.
• On the balance of book profit: 60% of the amount.

These limits are applicable only if the remuneration is paid to working partners and is authorised by the partnership deed. Detailed Article is about Under Section 40(b) is here.

3. Interest on Capital – Income Tax Rules

Interest paid to partners on their capital contributions is allowed under Section 40(b) only if:

• It is mentioned in the LLP/partnership deed

• The rate does not exceed 12% per annum

Interest above 12% will be disallowed during tax assessment.

4. Interest on Partner Loan – Treatment & Taxability

Partners may also give loans to the LLP beyond their capital contribution. Interest paid on such loans is treated differently.

Key Points:

• No 12% limit applies to partner loans (unlike capital interest).

• The rate of interest should be at arm’s length and documented in the agreement.

• This interest is fully deductible under business expenses (Section 36(1)(iii)).

Taxation:

• Taxable in the hands of the partner

• TDS must be deducted under Section 194A if the interest exceeds ₹5,000 in a financial year (if partner is an individual/HUF not covered under exemption)

Note: Interest on loan is different from capital interest and must be shown separately in books and filings.

5. TDS Applicability on Partner Payments

The treatment of TDS depends on the type of payment:

6. Share of Profit – Fully Exempt

After paying taxes at the firm/LLP level, the share of profit distributed to partners is fully exempt in their personal ITR under Section 10(2A). However, this must still be disclosed for record purposes.

7. Summary Table – Tax Treatment

Conclusion

A Partner Remuneration Calculator is a must-have tool for LLPs and partnership firms to compute allowable deductions under Section 40(b). When used with awareness of TDS implications and the difference between capital and loan interest, it ensures both compliance and tax efficiency.

Always document terms clearly in the LLP agreement, keep payments within statutory limits, and maintain TDS obligations accurately to avoid tax disallowances.

Need a partner remuneration calculator in Excel or guidance on updating your LLP deed? Contact our advisory team today.