Q

LLP Taxation

For the tax purpose, LLPs are on the same parlance as Partnership firms, flat tax rate of 30% is levied on the income of LLP.

Overview

LLP (Limited Liability Partnership) is a new hybrid form of business entity. The union budget 2009-10 amended the definition of firm and partners for the purpose of LLP taxation and treated the LLP as partnership firm regarding taxation. However, LLP will be taxed on the same line of partnership.

Being a separate legal entity from its partners, the income of LLP is taxable in the hands of partners. Hence, the designated partner shall be responsible for filing and signing the income tax return of LLP. In case designated partner fails to do, then any partner can sign the income tax return.

 

Tax Rate

  • Unlike partnership firm, LLP treated as a distinct taxable entity registered under the Limited Liability Partnership Act, 2008. But for taxation purpose both treated as same. However, Income tax slab rate is not considered for the computation of taxes on the income of LLP. A flat rate of 30% is levied on LLPs and partnership firm as well.
  • Similar to the private company, 2% EC (Education Cess) and 1% SHEC (Secondary and Higher Education Cess) levied on LLP in addition to the income tax.
  • Surcharge @ 10% will be applicable if the income of LLP exceeds Rs.1 crore in any financial year.
  • Provisions of MAT (Minimum Alternate Tax), Dividend Distribution Tax, Deemed Dividend and Wealth Tax will not be applicable in the case of LLP.
  • LLP is liable to pay AMT (Alternate Minimum Tax) on the adjusted total income of LLP @18.5%+ 3% education cess, effective rate is 19.05%.

 

Some specific aspects of taxation of LLP

  • Receipt of interest from LLP is taxed under the head of ‘Income from Business & Profession’. Deduction for interest on contribution is allowed only if it conditions of section 184 and section 40(b) of the income tax act is satisfied.
  • Remuneration to partners will also be taxed under the business income. LLP is allowed to get the deduction of such remuneration subject to the maximum limit mentioned under section 40(b).
  • According to Rule 23 of the LLP Rules 2009, if any asset introduced by a partner then it has to be valued by Chartered Accountant and Capital gain should be taxable in the hands of partner as per section 45(3) of the income tax.
  • Losses can be carried forward only if the provisions of section 47 are following.
  • No capital gain in case of conversation of partnership firm into LLP, if there is no transfer of assets or liabilities and no change in the rights and responsibilities of the partners.

 

NOTE:

*Section 40(b) – Minimum of the following allowed for deduction:

on the first Rs 3 lacs of the book-profit or in case of a loss

Rs 1.5 lacs or 90% of book profit whichever is more

on the balance of the book profit

60% of such book profit above Rs 1.5 lacs

 

*Section 47- Transactions not regarded as ‘Transfer’

 

Due Date

 

Income Tax Return

Last date for filing

In case of audit is not required

31 JULY

In case of audit is required

30 SEPTEMBER


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