LIMITED LIABILITY
PARTNERSHIP
BY
CA. RANJEET NATU
PARTNER
NATU & PATHAK
CHARTERED ACCOUNTANTS
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
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
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
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
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
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
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
TAXABILITY – LLP & PARTNERS
Sr No
Particulars
Taxability LLP
Taxability
Partners
1
Net profit after @ 30% + 3% Nil
allowable
education cess
remuneration &
interest
2
Remuneration
3
Interest
capital
Allowed
as Taxable in the
deduction
to hands
of
the extent of partners
allowable
remuneration
on Allowed
as Taxable in the
deduction
to hands
of
the extent of partners
12% p.a. simple
interest
NATU & PATHAK, CHARTERED ACCOUNTANTS
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
THANK YOU
NATU & PATHAK, CHARTERED ACCOUNTANTS