Business Income & Audit

Paying yourself from your business: drawings, remuneration, salary or dividend

1 min read Updated 03 Oct 2026 2 views

AI summary

How owners of a proprietorship, firm, LLP or company should take money out of the business, and how each route is taxed.

5 sections

Entity	How the owner takes money	Deductible for the business?	Taxed in the owner's hands?
Proprietorship	Drawings	No. Business profit is already your income	No separate tax; you pay tax on the business profit
Partnership firm / LLP	Remuneration and interest on capital	Yes, within limits	Yes, as business income
Share of profit	No	Exempt (the firm already paid tax)
Company	Salary as a director or employee	Yes	Yes, as salary (TDS applies)
Dividend	No	Yes, at slab rates (TDS above ₹10,000 a year)
Loan from the company	—	Can be taxed as deemed dividend; get advice

Remuneration is deductible only if the partnership deed authorises it and it is paid to working partners. The maximum deductible is:

Book profit	Limit
First ₹6 lakh (or a loss)	₹3 lakh or 90% of book profit, whichever is higher
Balance	60%

Interest on capital is deductible up to 12% a year simple interest.

TDS: the firm deducts 10% TDS on remuneration and interest once payments to a partner cross ₹20,000 in a year.

Example: book profit ₹10 lakh → limit = 90% of ₹6 lakh (₹5.4 lakh) + 60% of ₹4 lakh (₹2.4 lakh) = ₹7.8 lakh.

Salary reduces company profit (saving corporate tax) but is taxed at your slab rate, and needs TDS, payroll and possibly PF.
Dividend is paid from post-tax profit and taxed again at your slab rate, so the total tax is often higher.
Most owner-directors take a reasonable salary for their work and dividends only from surplus. Keep the salary consistent with your role and the company's size.

Record drawings in a Drawings A/c, not as an expense.
Don't pay personal bills from the business account. If you must, record them as drawings.
Your tax is on the business profit, whatever you withdraw.

Sources

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