2. TAXATION OF LLP IN INDIA
• LLP’s will be treated as Partnership Firms for the purpose of Income Tax w.e.f assessment
year 2010-11
• Profit will be taxed in the hands of the LLP and not in the hands of the partners.
• Income is taxed at a flat rate of 30% + 3% education cess.
• No Minimum Alternate tax or Dividend Distribution tax is applicable.
• However Alternate Minimum Tax is applicable.
NATU & PATHAK, CHARTERED ACCOUNTANTS
3. DEDUCTIONS TO LLP
• LLP can claim the following deductions:-
o Interest paid to partners, provided such interest is authorized by the LLP Agreement.
o Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will
be allowed as a deduction if it is paid to a working partner who is an individual.
o Only a working partner can get salary. No sleeping partner can get salary. if a LLP is paying
salary to a sleeping partner then it is not allowed.
NATU & PATHAK, CHARTERED ACCOUNTANTS
4. DEDUCTIONS TO LLP
• LLP can claim interest on capital maximum to the extent of 12% p.a. (simple interest) Any extra
interest will be dis-allowed.
• The remuneration paid to such working partner must be authorised by the LLP Agreement and
the amount of remuneration must not exceed the given limits
• Limits of Remuneration to Partners:
o The Income Tax Act prescribes the ceiling limit upto which any payment of salary, bonus,
commission or remuneration will be allowed as deduction for income of LLP, the limits of
remuneration are outlined below:
On First Rs 3,00,000 of book profit or in case of lossRs 1,50,000 or at the rate of 90% of
the book-profit, whichever is more On the balance of book profit at the rate of 60%.
NATU & PATHAK, CHARTERED ACCOUNTANTS
5. SPECIAL PROVISIONS
• Capital Gain on conversion of Company into LLP will be exempt (assets as well as shares) from tax, if following
conditions are complied with.
all the assets and liabilities of the company immediately before the conversion become the assets and
liabilities of the limited liability partnership;
all the shareholders of the company immediately before the conversion become the partners of
the limited liability partnership and their capital contribution and profit sharing ratio in the
limited liability partnership are in the same proportion as their shareholding in the company on the date
of conversion;
the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any
form or manner, other than by way of share in profit and capital contribution in the
limited liability partnership;
the aggregate of the profit sharing ratio of the shareholders of the company in
the limited liability partnership shall not be less than fifty per cent at any time during the period of five
years from the date of conversion;
the total sales, turnover or gross receipts in the business of the company in any of the three previous
years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees;
and
no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit
standing in the accounts of the company on the date of conversion for a period of three years from the
date of conversion.
Section 47(xiiib)
NATU & PATHAK, CHARTERED ACCOUNTANTS
6. SPECIAL PROVISIONS
• U/s. 72A on conversion, the successor LLP, will be allowed to carry forward and set off of
accumulated loss and unabsorbed depreciation allowance. However, if the conditions laid out in
section 47(xiiib) are not complied with then the losses allowed as set-off will be deemed to be
income of the year in which such non-compliance occurs.
• If the conditions relating to 47(xiiib) are not complied in any year then the capital gains exempted
earlier shall be deemed to be income of such year (Section 47A).
• Benefit of amortisation of expenses u/s. 35DDA will be available to resultant LLP in case of
conversion of a company.
• Cost of acquisition of rights in LLP by the partners on conversion from company shall be taken as
the cost of acquisition of the share in the company (Section 49(2AAA)).
• LLP is not covered under presumptive taxation under section 44AD.
NATU & PATHAK, CHARTERED ACCOUNTANTS
7. SPECIAL PROVISIONS
• Partners are jointly and severally liable for the taxes outstanding at the time of liquidation of llp
unless he he proves that the non-recovery cannot be attributed to any gross neglect,
misfeasance or breach of duty on his part in relation to the affairs of
the limited liability partnership (Section 167C).
• MAT credit of the a company converted to a LLP can not be carried forward to the LLP u/s.
115JAA.
• In the case of conversion of company into LLP the cost of assets for llp shall be taken as the WDV
of the block of assets of the company (Section 43).
NATU & PATHAK, CHARTERED ACCOUNTANTS
8. ADVANTAGE OVER COMPANIES
• In case of Company any receipt/ payment of funds from / to unsecured loans in cash will attract
the applicability of disallowance u/s. 269SS & 269T. In case of LLP, the partners can bring in
capital in cash.
• Applicability of deemed dividend – Not applicable for LLP since any payment to partners will
result in withdrawal of capital. However, in case of Company, any payment to a person holding a
beneficial interest may result in the payment being treated as a deemed dividend u/s. 2(22)(e).
NATU & PATHAK, CHARTERED ACCOUNTANTS
9. TAXABILITY – LLP & PARTNERS
Sr No Particulars Taxability LLP Taxability Partners
1 Net profit after
allowable
remuneration &
interest
@ 30% + 3%
education cess
Nil
2 Remuneration Allowed as
deduction to the
extent of allowable
remuneration
Taxable in the
hands of partners
3 Interest on capital Allowed as
deduction to the
extent of 12% p.a.
simple interest
Taxable in the
hands of partners
NATU & PATHAK, CHARTERED ACCOUNTANTS
10. DUE DATES FOR FILLING OF LLP
• It has to prepare statement of accounts and solvency statement on or before 30th September
each year ( to be signed by the designated Partner)
• Tax Audit applicable as per the existing limits i. e. Rs. 1 Crore for Business and Rs. 25 Lakhs for
Professionals (Section 44AB).
• Return of income shall be signed by the designated partner and in case of unavoidable
circumstances or where there is no designated partner, by any partner (Section 140).
NATU & PATHAK, CHARTERED ACCOUNTANTS
