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Taxation of LLP

Taxation of LLP

LLP is a hybrid form of legal entity having the features of both, General Partnership and Company. It provides the benefits of limited liability but allows its partners the flexibility of organising their internal operations as partnership. As soon as the Limited Liability Partnership Act got the legal consent, the need for a clear cut tax regime in respect of the income of the LLP was essential to give certainty in all respects of conducting business via this mode of business. Finance Act, 2009 provided for the same.

LLP – Taxation :

1)LLP s are treated as Partnership Firms for the purpose of Income Tax .

2) As per the provisions said in law firms include partnership and LLP.And partners include partners as said by partnership act and LLP act.

3) Income tax rate :

1. 30% flat tax rate + 3% education cess

2. No Minimum Alternate Tax & Dividend Distribution Tax

4) If the income of the partnership firm is more than Rs. 1 Crore in any financial year, Surcharge @ 10%would also be payable.

5) Deduction in respect of interest on loan & capital to partners is allowed up to 12% simple interest per annum. But the same should be provided in the LLP agreement. No deduction is allowed for the interest paid retrospectively.

6) Remuneration to partners :

The word remuneration includes Salary, bonus commission, royalty. This is allowed as deduction if it is paid to working partner only. Maximum deduction allowed is :

Book ProfitRemuneration as a % of Book Profit
On first 300000150000 or 90% of book profit which ever is higher
On the balance60% of Book Profit

7) The interest, remuneration shall be chargeable as in the hands of the partner under the head income from business or profession.

8) Like Normal partnership firm The share of the partners in the total income of the firm is exempt in the hands of the partners as the same has already been taxed in the hands of the partnership firm.

9) As the profit of the firm is taxable in the hands of firm only , losses are also can be carried forward to subsequent years only in the hands of the LLP.

10) LLP are not eligible to claim the benefits of presumptive taxation u/s 44AD.

11) In case of an LLP, return of income can be signed by the designated partner thereof, or if due to any unavoidable
reason such designated partner is not able to sign and verify the return, or where there is no designated partner then any partner can sign it.

Taxation of LLP

RULES UNDER COMPANIES ACT 2013

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