Taxation of LLPs in India:
Limited Liability Partnerships (LLPs) have emerged as a popular form of business structure in India due to their hybrid features of a partnership and a company. With increasing adoption, it becomes essential for stakeholders to understand the taxation framework applicable to LLPs under Indian law.
This article outlines the key aspects of taxation of LLPs, compliance requirements, and benefits under the Income Tax Act, 1961.
Legal Framework
LLPs in India are governed by the Limited Liability Partnership Act, 2008, and the Income Tax Act, 1961 governs their taxation.
Taxability of LLPs: Key Points
1. Status Under Income Tax
An LLP is treated as a *partnership firm* for income tax purposes.
2. Flat Rate of Taxation
LLPs are taxed at a *flat rate of 30%* on their total income. Additionally:
- Surcharge: 12% if income exceeds ₹1 crore.
- Health and Education Cess: 4% on tax plus surcharge.
3. No Dividend Distribution Tax (DDT)
Unlike companies, LLPs are not required to pay DDT. Hence, profits can be distributed to partners without any additional tax.
4. Alternate Minimum Tax (AMT)
LLPs are subject to AMT @18.5% (plus surcharge and cess) if they claim deduction under Section 10AA or Chapter VI-A (Part C – Sections 80H to 80RRB except 80P).
Allowable Remuneration and Interest to Partners
LLPs can pay interest and remuneration to partners, which are *allowable as deductions* under Section 40(b), subject to the following conditions:
|
Particulars |
Maximum Allowable Remuneration |
|
On first ₹6,00,000 of book profit or in case of loss |
₹3,00,000 or 90% of book profit (whichever is higher) |
|
On the balance of book profit |
60% of book profit |
- Interest on capital is allowed up to 12% p.a.
- The LLP agreement must authorize such payments for them to be allowable.
Filing and Compliance Requirements
|
Compliance |
Due Date |
|
Income Tax Return (ITR 5) | |
31st July (non-audit cases) 31st October (audit cases) |
|
Tax Audit (if turnover > ₹1 crore or other limits met) |
30th September |
|
Payment of Advance Tax |
Quarterly, if tax liability exceeds ₹10,000 p.a.
|
|
TDS Return (if applicable) |
Quarterly |
Other Important Tax Provisions
Capital Gains: Sale of assets by LLP attracts capital gains tax.
Presumptive Taxation (44ADA): Not applicable to LLPs.
Conversion from Company to LLP: No capital gains tax on conversion if conditions under Section 47(xiiib) are satisfied.
Key Advantages of LLPs in Taxation
Common Pitfalls
Conclusion
LLPs provide a tax-efficient business structure, especially for professional firms and SMEs. With the right planning and compliance strategy, businesses can optimize tax outflow and maintain legal standing. At *TKC*, our dedicated team assists LLPs in tax planning, return filing, and audit support to ensure smooth operations and legal compliance.
