Being a partner in an Indian firm or LLP as an NRI

The good news first, and it applies to you as an NRI. Your share of the profit of an Indian firm or LLP is exempt in your hands under Section 10(2A). The reason is that the firm itself has already paid tax on its whole profit, so taxing the partner's share again would be double taxation. Some guides wrongly say this exemption is only for resident partners; it is not, a non-resident partner's share of the profit is equally exempt.

What is taxable is what the firm pays you as a working partner beyond your profit share: the interest on your capital, and your remuneration or salary. These are taxable in your hands as business income, but only to the extent the firm was allowed to deduct them under the limits in the law, which were raised from the 2025-26 year. Anything the firm could not deduct is not taxed again on you. So your income from the firm splits into an exempt profit share and taxable interest and remuneration.

A recent change affects the cash flow. From the 2025-26 financial year, a new provision, Section 194T, requires the firm to deduct 10% TDS on a partner's remuneration, interest, commission or bonus once it exceeds ₹20,000 in the year, whereas before there was no TDS on payments to partners. So you will now see tax withheld on your interest and remuneration from the firm, which you reconcile on your return. For a non-resident partner there is an open question, not yet settled by the department, whether this new Section 194T applies, or whether the non-resident withholding under Section 195 governs instead; the better view is that Section 195 should apply to you, which also preserves any treaty benefit, but it is worth handling with that uncertainty in mind.

On whether you can be a partner at all, you can, subject to the exchange-control rules. An NRI can be a partner in a firm on a non-repatriation basis, provided the firm is not in a barred activity such as agriculture, plantation, real estate as a business, or print media, and can be a partner in an LLP subject to the foreign-investment conditions, with the rule that at least one designated partner of an LLP must be resident in India. A practising CA keeps your profit share exempt, taxes the interest and remuneration correctly, handles the new withholding and the treaty position, and confirms the exchange-control footing.