Business Income & Audit

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

1 min read Updated 03 Oct 2026 1 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

Was this guide helpful?