What are the Taxation Aspects of LLP?

LLP stands for Limited Liability Partnership Firm. LLPs are formed as per provisions of LLP Act,2008. It is like a combination of Firm and a Company. LLP has got statutory compliances more or less like a Company. On the other hand, for taxation purpose it is treated like a partnership firm. In this article we will discuss LLP Taxation. So, let us get started-

Table of Contents

Basic Features of a LLP

LLP is a limited liability partnership. It is getting really popular these days because of its unique features. The basic features of LLP are:-

  • LLP is a legally separate entity from its partners.
  • The liability of the partners is limited to their agreed contribution in LLP
  • Concept of Joint Liability is not there in LLP. Any partner cannot be held liable for misconduct on part of any other partner.
  • LLP must have minimum 2 partners and there is no restriction on maximum number of members.
  • Any existing partnership firm, private company or a public unlisted company can be converted into LLP.

LLP Taxation Rates and Audit Applicability

For discussing the LLP Taxation rates, first we must specify here that LLP has to maintain proper books of accounts and accounting records. The LLP taxation is done at rates applicable to firm.

  • Income Tax-
Particulars Applicable Tax Rates
Tax Rate Applicable Flat rate of 30%
Surcharge (if income exceeds Rs.1 crore) 12% on tax above
Health and Education Cess 4% of income tax and surcharge.
  • Alternate Minimum Tax (AMT)-

A LLP is liable to pay AMT at the rate of 18.5% (plus surcharge and Health and Education Cess as applicable) if it has claimed following deductions-

                    Sections Nature of Deduction
Sections 80H to 80RRB (except 80P) Most of these deductions are for profits of newly established business, projects, industrial undertaking etc.
Section 35AD Deduction for capital expenditure incurred for a specified business
Section 10AA Business that claims deduction for setups in Special Economic Zones(SEZ)

In this case LLP needs to get a report Form 29C from a Chartered Accountant.

  • LLP needs to get its accounts audited if the turnover crosses the limit of Rs.1 crore in case of goods and Rs.50 lakhs in case of services. The tax audit report also needs to be filed online.
  • LLP is not eligible for presumptive taxation schemes under section-44AD/44ADA.

Other Relevant Aspects of  LLP Taxation

One of the important aspect of LLP taxation is the allowable remuneration or interest to the partner.

The following is the interest and remuneration allowed to partners

  • Interest payable upto the rate of 12% per annum.
  • Remuneration is allowed as per below calculation-
Amount of Book profit Allowable Remuneration
On First Rs.3 lakhs of Book profit or in case of Loss Rs.1,50,000/- or 90% of book profit whichever is higher
On balance book profits 60% of Book profits

In addition to above we need to also keep following points in mind-

  • Salary, bonus, remuneration, commission etc paid to non-working partners will not be allowed.
  • Remuneration, interest that is not in accordance with partnership deed will not be allowed.

Filing Returns

The due dates for filing returns are also same as applicable on a partnership firm. The dues dates are as follows:-

Particulars Due Dates for AY 2021-22 (after extension)
If LLP is required to get its accounts audited 15.02.2022
In case of transactions related to transfer pricing 28.02.2022
In other Cases 31.12.2021

The LLP should file its return of income in ITR-5. As per law, it is mandatory for a LLP to file its return. LLP can file its return online. In case, the accounts of LLP are audited then LLP has to file its return of income with digital signature.

Conclusion

In this article, our scope of discussion was LLP taxation. In addition to this, LLP needs to do certain other statutory compliances as well. From above discussion we can infer that LLP not only gives the benefits of a body corporate but also provides relaxation of being a firm. Therefore, LLP is a type of business setup that is getting very popular these days. That is the reason understanding LLP taxation becomes really important.

CategoryIncome Tax

CA Rishabh Maheshwari is an associate Chartered Accountant having expertise in conducting statutory and internal audits of large clients. He has also done a certified course on Concurrent audits of banks. He is responsible for coordination, planning, team leadership in connection with Audits and GST of Private and Public Companies with an experience of almost 3 years.

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