Manager - Finance & Accounts
58384 Points
Joined June 2010
Hi Haripara Sachin,
That's a thoughtful and practical query — especially relevant for LLPs having body corporate partners (like companies or LLPs) and their individual nominees managing day-to-day affairs.
Let’s break this down from both LLP Act and Income Tax Act perspectives:
✅ 1. Can LLP pay remuneration to nominee of a body corporate partner?
🔹 Under the LLP Act, 2008:
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An LLP can have a body corporate (like a company or another LLP) as its partner.
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Such body corporates nominate individuals to act on their behalf in the LLP.
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LLP Act does not prohibit payment of remuneration to an individual nominee, if he is actively involved in the management or operations.
✅ So, yes, an LLP can pay remuneration to a nominee of a body corporate partner — as long as:
💰 2. Who should receive the remuneration — Body Corporate or the Nominee?
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If the nominee is paid for services rendered personally (i.e. managerial or operational work), payment should be made to the nominee, not the body corporate.
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The remuneration is then treated as income in the hands of the nominee (individual) and taxed accordingly.
❌ Do not pay remuneration to the body corporate, as that could create legal/tax complications unless the body corporate is rendering services directly (which is rare in LLPs).
📘 3. Under Income Tax Act — Is the remuneration allowed as a deduction?
Yes, remuneration paid to a working partner (including a nominee) is allowed under Section 40(b), subject to the following conditions:
✅ Conditions under Section 40(b):
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Remuneration is paid only to working partners
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It is authorized by the LLP Agreement
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It is within the limits prescribed under Section 40(b)(v):
✅ If the nominee is effectively a working partner (on behalf of body corporate) and the remuneration is authorized in the LLP Agreement, it is allowed as a deduction under Income Tax.
✳️ Practical Points to Keep in Mind
Point |
Recommendation |
LLP Agreement |
Include specific clause permitting payment to nominees of body corporate partners |
Taxability |
Remuneration is taxed in the hands of nominee, not the body corporate |
TDS |
Deduct TDS under Section 194J (Professional) or as applicable |
Audit trail |
Maintain clear documentation showing role of nominee and basis for remuneration |
Working Partner definition |
Ensure nominee is actively engaged in business (as per IT Act requirement) |
📝 Summary
Issue |
Answer |
Can LLP pay remuneration to nominee of body corporate partner? |
✅ Yes, if allowed by LLP Agreement |
Who should receive it? |
👤 Nominee (individual), not the body corporate |
Is it allowed under Income Tax? |
✅ Yes, under Section 40(b), if nominee is a working partner |
TDS Applicability |
✔️ Likely under Section 194J, unless covered under salary or other heads |