Tax benefits on conversion of Company into LLP

Conversion of Company into LLPOn conversion of a Private Limited/ Public Company into Limited Liability Partnership (LLP) various tax benefits are being provided. A LLP can avail numerous tax benefits on its conversion from Private/ Public Company. Some of the benefits to be availed by LLPs are as follows –

  • Transfer of assets – Both tangible and intangible assets gets transferred from the Public/ Private Company to the newly formed LLPs.

In order to avail the aforesaid exemption, the following conditions under Sec 47(xiiib) should be fulfilled –

  • All assets and liabilities of the company becomes the assets and liabilities of the LLP.
  • No consideration other than share in profit and capital contribution in the LLP arises to partners.
  • A total sales, turnover or gross receipt in the business of the company does not exceed Rs. 6000000 in any of the three preceding years.
  • All the shareholders of the company becomes partners in the LLP in the same proportion as their shareholding in the Company.
  • No amount is paid either directly or indirectly to any partner out of the accumulated profit of the company on the date of conversion for a period of 3 years from the date of conversion.
  • The shareholders of the company continue to be entitled to receive at least 50% of the profits of the LLP for a period of 5 years from the date of conversion.
  • Business losses – Carry forward and set off of the business losses and unabsorbed depreciation of the predecessor Company is allowed to the successor LLP only if the above mentioned conditions in sec 47(xiiib) have been fulfilled.
  • Cost of assets – Actual cost of the block of assets of a successor LLP shall be the written down value (W.D.V.) of the block of assets of the predecessor Company on the date of conversion.
  • Cost of acquisition of Capital Assets – The cost of acquisition of the capital assets for the successor LLP shall be deemed to be the cost for which the predecessor company had acquired such capital asset.
  • Amortization benefits – If the conditions mentioned above in sec 47(xiiib) are fulfilled, then the benefits of amortization of expenses in relation to Voluntary Retirement Scheme shall be available to the LLP as if no succession has taken place.
  • No MAT credit – since there is no MAT on LLP, tax credit of the MAT paid by the Company shall not be allowed to the LLP.
  • Rates of Depreciation – In any year, the aggregate depreciation allowable to the predecessor Company and the successor LLP shall not exceed the depreciation calculated at the rates prescribed as if no conversion has taken place.

    It is also proposed that if the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with.

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