What is the Allowable Remuneration to partners in an LLP?
Remuneration includes commission, salary, bonus paid to working, sleeping or non-working partner of LLP. (LLP) Limited Liability partnership enjoys both the benefits of LLP or Partnership firm. The measures benefits of Limited Liability over partnership firm are liability of partner in Limited liability partnership firm extend to their only. Further for rewarding partner, who are actively participating in day to day business operation remuneration are given to those partner.
There are three source majorly used to give remuneration to partners.
2. Interest on Capital
3. Share of Profit
The remuneration by the partners from LLP is taxable in the hands of partners as Business Income. The income of remuneration for partner isn’t included as share of profit.
Interest on Capital
Interest on capital paid to partners is taxable in the hands of partners as Business Income.
Share of Profit
The share of profit entered by the partners, whether being working or Non-working Partner is exempted under Section 10 (2A) of Income Tax Act.
The expression remuneration includes any remuneration, salary bonus or commission (by whatever name called) paid to a partner. The remuneration is typically outstanding to the partners who are actively contributing in day to day operations of the LLP. For awarding their work and hard work like other employees of firm, the remuneration is payable to them.
Interest is paid to partners who have introduced the capital whether by way of cash or any other mode.
The expression share of Profit assumes the chance of profit distributed among the partners as return from the profit earned by the LLP with the capital introduced and sweats of the partners by the partners in LLP.
Then, there are some aspects explained with respects to remuneration of partners in LLP.
Which partners are eligible for Remuneration from LLP?
The remuneration of partners of Limited liability partnership is specifically regulated by and subject to the clauses of LLP Agreement. Whether Partner is Working or Non-working i.e. Sleeping Partner, the remuneration paid or payable shall be authorized by Limited liability partnership Agreement.
Interest on Capital Introduced
The maximum interest allowed under Income Tax Act is simple interest at the rate 12 sire any quantum in excess of 12 is disallowed under the Act. The LLP Agreement shall authorize the payable of interest to capital account. The chance of interest outstanding may be incorporated in the LLP Agreement for authorizing same.
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