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Key Pointers about taxation of LLPs


Taxation of LLPsTax is something which every business entity is required to pay to Income Tax department in India. Tax laws have been introduced for every business enterprise. But the Limited Liability Partnership is not governed by any tax laws in India as others are governed. No provision has been provided for taxation structure of LLPs in the LLP Act.

The Finance Bill, 2009 thus provides the following proposals regarding the taxation of Limited Liability partnerships (LLPs) –

  • The LLPs shall be taxed on the same grounds as that of Partnerships under the Indian Partnership Act, 1932 i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners.
  •  Changes are required to be made for LLPs in the Income Tax Act, 1932 like –
  1. the word ‘partner’ to include in its meaning the ‘partners of limited liability partnership’.
  2. the word ‘firm’ to include in its meaning ‘limited liability partnership’ and
  3. the word ‘partnership’ to include within its meaning a limited liability partnership
  • The designated partners shall sign and file the Income tax return of a LLP.
  • LLPs are not liable for presumptive taxation scheme.
  • No surcharge will be levied on income tax.
  • Capital Gain on conversion of Company into LLP will be exempt from tax, if prescribed conditions are complied with.
  • In case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.
  • Remuneration to partners will be taxed as “Income from Business & Profession”.
  • Minimum Alternate Tax (MAT) and Dividend Distribution Tax will not be applicable for Limited Liability Partnerships (LLPs).
  • No capital gain on conversion of partnership firms into LLP.
  • If there is a violation of these conditions, the provisions of Sec 45 of Income-tax Act shall apply.
  • These amendments are proposed to be made effective from the 1st day of April 2010 i.e. assessment year 2010-11.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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