Is Limited liability partnership really tax efficient when compared to private limited company

The most important decision for starting a business is the decision regarding its form of organization i.e. whether one should incorporate Limited Liability Partnership (LLP) or whether to go for a Private Limited Company (PVT). Selection of the proper business depends on various factors concerning the type of business an entrepreneur wants to run, the number of persons involved, the business liability which an entrepreneur is ready to bear, tax compliances and its mandate and at last the type of responsibility which is preferred to be shared. Thia article is basically based on showing whether limited liability partnership really tax efficient when compared to private limited companyIs Limited liability partnership really tax efficient when compared to private limited company Thus, in this write-up, our thoughts on which legal form to choose i.e. whether to go for LLP or for PVT, is discussed. Let’s first understand in brief that what actually is LLP or PVT. What is LLP? LLP means Limited Liability Partnership. As, the name suggest, LLP is a form of organization having its separate legal entity and there exist limited liability on the partners to their agreed contribution. LLP is regulated by The Limited Liability Partnership Act, 2008. It has perpetual succession and partners may come and go. What is Private Limted Company? Private Limited Company is regulated by Companies Act; 1956.It is a voluntary association formed with minimum of 2 partners and maximum number of members required in a private company is restricted to 50. Just like LLP, there exist a separate legal entity and has perpetual succession where members may come and go. Liability of Members is limited to the amount required to be paid up on each share. Why LLP is better than PVT? LLP is that type of corporate business which is mostly preferred since it is a mixture of both Company and Partnership. Company gives the benefits of limited liability whereas Partnership gives flexibility to LLP. More advantages of forming a LLP over Private Limited is explained below   Business Compliances:  

  • Formation of LLP is cost effective and requires lesser compliances as compared to company. Like, incorporation of a Company is required to contain MOA and AOA whereas incorporation of LLP is neither required to contain MOA nor AOA;


  • Compliance with all accounting standards and auditing standards is required to be followed in case of companies whereas LLP  is not yet notified;


  • Every company should get their books audited whether that company is having a share capital or not whereas audit under LLP Act, 2008 can be mandatory if its turnover exceeds 40 lacs or its capital contribution is more than 25lacs.

Cost Effective: Formation of LLP is relatively cheaper and hassle free. The expenses charged for formation and post incorporation of LLP is less as compared to a Private Limited Company.  

  1. Set off and Carry forward of Losses: Section 79 of Income Tax Act, 1956 mandates all companies to set off their incomes with losses and in case there exist excess loss then the same can be carried forward in the next financial year too. But, the section 79 cannot be exercised by any LLP.

Tax Treatment:

  • Applicability of Surcharge: It becomes applicable in companies as and when taxable income exceed 1 crore. But, the provision of same is not applicable to LLP. Hence less tax is charged on the income earned via LLP.


  • Dividend Distribution Tax: In companies, DDT is applicable which is not required to be levied on LLP resulting in lowering of tax. Such dividend distribution tax shall be payable @ 15% plus surcharge @ 5% plus education cess @ 2% plus SHES @ 1% of amount so declared, distributed or paid i.e. Current DDT rate is 16.2225%.


  • Minimum Alternate Tax/ Alternate Minimum Tax: In case taxable income exceeds 1 crore then rate of MAT in companies is 20.0077% whereas the rate of AMT in LLP is 19.055%

  And, in case, taxable income is below 1 crore, then rate of MAT in companies as well as rate of AMT in LLP is 19.055%. Thus, this too helps in lowering the taxes of LLP, proving LLP is better than Private Limited Companies.  

  • Normal Tax Provision: In case, taxable income exceeds 1 crore, then normal tax is charged @ 32.445% including Cess and Surcharge in company whereas tax rate of 30.90% is levied in case of LLP.

  And, in case, taxable income is below 1 crore, then tax is charged @ 30.90% for both company and LLP. Ceiling Limit on payment of remuneration: In case of company, remuneration is paid to directors having no maximum ceiling limit. Whereas, in LLP remuneration paid in LLP is remuneration paid to partners where ceiling limit gets fixed at the time of payment of remuneration. Thus, forming a LLP is much more advantageous as compared to a private limited company, which will be well explained in the following example. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [] or call us at +91 88208208 11. We would be more than happy to assist you.