Dear Querist,
Books alone are not the safest approach. The LLP deed should clearly authorise interest on partner capital/current account balances, including retained profits, remuneration and interest credited and treated as capital. In scrutiny, an amended/supplementary deed plus proper ledger and audited accounts is more defensible.
For working partner remuneration, the safest clause is a clear formula by which the exact amount can be calculated. Fixed amount is also acceptable, but less flexible. A vague clause saying “up to the maximum allowed under the Income-tax Act” is weaker in view of CBDT Circular 739.
Practical step: execute a supplementary LLP deed with clear capital and remuneration clauses before claiming deduction.
For a more detailed review of your case, you may book a phone consultation.
CA Shubham Goyal
