Partnership Firm – Definition Section 2(23) of the income tax act defines “ firms”, “partnerships” and “partner” provides that these terms shall have meaning assigned to them under the partnership act ,1932. As per amendment made by Finance Act 2009, a limited liability partnership is included in the definition of firm, partnership and partner. This article is basically on income atx perspective of limited liability partnerships. Audit under section 44AB Tax audit u/s 44AB would be applicable if total sales, turnover or gross receipts exceeds 1Crore or 25 Lakh in the case of profession. Other Audits There is no requirement of audit for a partnership firm under Indian Partnership Acts 1932. However under LLP Act 2008, every LLP having turnover not less than Rs. 40Lakhs or capital contribution not less than Rs. 25 Lakh should get their accounts audited by Chartered Accountant. Interest to partners Maximum interest allowable on capital/current account of partners is 12% per annum. The payment of interest should be authorized by and in accordance with the instrument of partnership. Remuneration to partners a)      Any payment of salary, bonus, commission or remuneration, by whatever name called can be paid only to a “working partner” i.e a partner who is actually engaged in conducting the affairs of the business            or profession of the firm. Such remuneration should be authorized by and in accordance with terms of the instrument of partnership. b)      Maximum permissible deduction in respect of remuneration payable collectively to all working partners has been made  uniform for all firms/ LLP engaged in business/profession with effect from A.Y. 2010-11 which is as follows:-

Book Profit	Maxmimum deduction
Loss or book profit up to Rs. 300000	Rs. 150000 or 90% of Book Profit whichever is higher
On Balance book profit	60% of the Book Profit

The remuneration is to be calculated on book profit of the firm; i.e. net profit as profit and loss  statement of the firm before allowing deduction of remuneration to partners. Losses of the firm Unabsorbed losses of the firm shall be carried forward and set off as per provisions in the hands of the firm. In case of change in constitution of the firm, the loss proportionate to share of retired or deceased partner shall not be allowed to be carried forward. Other taxation issues in LLP

• Alternate minimum Tax :  LLP’s are required to pay Alternate Minimum Tax (AMT ) @ 18.5%.
• Dividend distribution tax:  LLP would not be liable to dual taxation on distribution of profits as it is not liable for dividend distribution tax under section 115 O of the Act.
• Deemed Dividend : Any loan given by LLP to its partners out of accumulated profits/reserves is not liable to be taxed as deemed dividend unlike in the case of closely held companies.
• Signing of Income tax return :  Under section 140 return of income of an LLP is to be signed by a designated partner. However , if for any unavoidable reason designated partner cannot sign or where there is no designated partner , any partner can sign the return.
• Benefits of presumptive taxation not available to LLP: It may be noted  that the newly amended provision of section 44AD w.e.f 01.04.2011 relating  to presumptive taxation specifically exclude partnership firms established as limited liability (LLP).
• Carry Forward and set off of losses : Provisions of Sec 78 relating to carry forward and set off of losses in case of change of constitution of firm or on succession are applicable to LLP also.

 TAXATION OF PARTNERS

• Interest on capital, remuneration received from a firm is taxable in the hands of partner as profits & Gains of business or profession . However in case any amount is disallowed in the hands of the firm, such amount would not be taxable in the hands of partners
• Share of profit received from firm is exempt u/s 10 (2A).

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