Taxation of LLPs in India

The law to tax income of Limited Liability Partnership (LLPs) will go a long way in promoting the formation of LLPs. Some of the key highlights of the taxation of LLPs norms are as under :

  • The interest paid to partners, if so permitted by the LLP Agreement on the capital contributed by the partners should be allowed to the LLP only to the extent of 12% similar to that of partnership firms. Such interest paid to the partners of the limited liability partnership should be subject to tax in the hands of the partners as profits and gains of business or profession.
  • Salary being paid to the working partners in accordance with the LLP Agreement should be allowed as a deduction in the hands of Limited Liability Partnership. There should be no dis allowance in respect of salary to partners of a Limited Liability Partnership.
  • Salary paid to partners and allowed in the hands of the Limited Liability Partnership should be made taxable in the hands of partners as per the limited liability partnership agreement as profits and gains from business or profession.
  • The amount of profits credited to the accounts of partners would be subject to tax in the hands of the partners. The amount of profits, if any, accumulated by the “limited liability partnership” without being distributed to the partners and carried to its reserve etc. should be subject to tax in the hand of the “limited liability partnership” itself.

The LLP will be essentially a pass through entity, owing to the fact that added with the features of limited liability, all the inherent tax relaxation features of a traditional partnership firm is available to an LLP also. We at Taxmantra have a dedicated corporate law team comprising of Chartered Accountants, Company Secretaries and Legal Practitioners who expertly handles LLP Registration and Annual LLP Compliances. Further, we also have a direct taxation team who would plan the best tax structure for new LLPs and existing LLPs. Please feel free to get in touch at Contact Us.

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