Taxation of Limited Liability Partnerships by CA. PRAMOD JAIN FCA, ACS, AICWA, DISA LUNAWAT & CO.

1919thth December 2009 December 2009NIRC of ICSINIRC of ICSI Lunawat & Co.Lunawat & Co.

Taxation ofTaxation ofLimited Liability PartnershipsLimited Liability Partnerships

byby

CA. PRAMOD JAINCA. PRAMOD JAINFCA, ACS, AICWA, DISAFCA, ACS, AICWA, DISA

LUNAWAT & CO.LUNAWAT & CO.Chartered AccountantsChartered Accountants

19th December 200919th December 2009NIRC of ICSINIRC of ICSI Lunawat & CoLunawat & Co..

TAXATION ASPECTS

Definition of Firm, Partner & Partnership Definition of Firm, Partner & Partnership amended to include LLPamended to include LLP

Residential Status of LLP (6)Residential Status of LLP (6) Tax Rates of LLP Tax Rates of LLP LLP assessable as Firm (184)LLP assessable as Firm (184) Minimum Alternative Tax (MAT)Minimum Alternative Tax (MAT) Dividend Distribution Tax (DDT)Dividend Distribution Tax (DDT) Presumptive Taxation under section 44AD Presumptive Taxation under section 44AD Presumptive Taxation under section 44AEPresumptive Taxation under section 44AE


REMUNERATION

It should not be disallowed u/s 37(1)It should not be disallowed u/s 37(1) It should not be disallowed u/s 40(a)(i)It should not be disallowed u/s 40(a)(i) It should not be disallowed u/s 40A(2) It should not be disallowed u/s 40A(2) Should be paid to a working partner who is an Should be paid to a working partner who is an

individual. individual. Such remuneration is authorised by and is in Such remuneration is authorised by and is in

accordance with LLP Agreementaccordance with LLP Agreement It is related to period falling on or after the date of It is related to period falling on or after the date of

such LLP Agreement such LLP Agreement The LLP should comply with conditions u/s 184The LLP should comply with conditions u/s 184 It should be within the limits specified in sub-It should be within the limits specified in sub-

clause (v) of clause (b) of section 40clause (v) of clause (b) of section 40


INTEREST

It should not be disallowed u/s 36(1) (iii) It should not be disallowed u/s 36(1) (iii) It should not be disallowed u/s 40(a)(i)It should not be disallowed u/s 40(a)(i) It should not be disallowed u/s 40A(2) It should not be disallowed u/s 40A(2) It should not be disallowed u/s 40(b) i.e.:It should not be disallowed u/s 40(b) i.e.:

Such interest is authorised by and is in Such interest is authorised by and is in accordance with LLP Agreementaccordance with LLP Agreement

It is related to period falling on or after the It is related to period falling on or after the date of such LLP Agreement date of such LLP Agreement

It should be within the limits specified in It should be within the limits specified in clause (iv) of section 40b which is currently clause (iv) of section 40b which is currently 12% p.a. simple interest.12% p.a. simple interest.

The LLP should comply with conditions u/s The LLP should comply with conditions u/s 184 184


OTHER ISSUES

Deemed DividendDeemed Dividend Taxation on conversions of firms, etc. in Taxation on conversions of firms, etc. in

LLPLLP Taxability of amounts received by Taxability of amounts received by

partners from LLP partners from LLP Liability of partners for tax dues of LLP Liability of partners for tax dues of LLP

(167C)(167C) Applicability of Accounting StandardsApplicability of Accounting Standards Carry forward and set off of lossesCarry forward and set off of losses Wealth TaxWealth Tax


Partnership vs. LLPPartnershipPartnership LLPLLP

Legal EntityLegal Entity Not SeparateNot Separate SeparateSeparate

Perpetual Perpetual successionsuccession

NoNo YesYes

No. of No. of membersmembers

Min. 2 Max. 20Min. 2 Max. 20 Min2 Max NAMin2 Max NA

Instrument Instrument RequiremeRequirementsnts

Deed on Stamp Deed on Stamp paper, even if paper, even if change in Const.change in Const.

LLPA to be reg. LLPA to be reg. at ROC, Fees for at ROC, Fees for filing all doc.filing all doc.

Governing Governing lawlaw

Indian Indian Partnership ActPartnership Act

LLP Act & LLP Act & Companies ActCompanies Act



Capital Capital RequiremeRequirementnt

Nil, However Nil, However Stamp paper as Stamp paper as per capitalper capital

Contribution as Contribution as per LLPAper LLPA

Partner’s Partner’s IdentityIdentity

No legal No legal requirementrequirement

DP to obtain DP to obtain DPINDPIN

LiabilityLiability UnlimitedUnlimited Limited to Limited to contributioncontribution

NamesNames No regulationNo regulation RegulatedRegulated

AuditAudit Only if turnover Only if turnover exceeds 40L – exceeds 40L – 44AB44AB

Only if turnover Only if turnover exceeds 40L or exceeds 40L or contribution 25 contribution 25 LL



FinancialsFinancials SecretSecret Statement of Statement of accounts to be accounts to be filedfiled

PenaltiesPenalties NilNil As per LLP ActAs per LLP Act

Capital Capital withdrawalwithdrawal

FlexibleFlexible As per LLPAAs per LLPA

Loans – Loans – 269SS/T269SS/T

Partner’s capital Partner’s capital – cash /trf – cash /trf allowedallowed

Apart from Apart from contribution, contribution, loans may be loans may be covered covered

Most Most preferred preferred byby

Small Small businesses and businesses and professionalsprofessionals

ProfessionalsProfessionals



Tax RatesTax Rates Flat 30% + Flat 30% + cess No cess No surcharge surcharge

Flat 30% + cess. Flat 30% + cess. No surchargeNo surcharge

44 AD44 AD Available Available Not availableNot available

44 AE44 AE AvailableAvailable Seems to be Seems to be availableavailable

Liability of Liability of partners partners for tax for tax duesdues

Every partner Every partner is jointly & is jointly & severally severally liable (S. liable (S. 188A) 188A)

J & S liable unless J & S liable unless proves non-proves non-recovery cannot be recovery cannot be attributed to his attributed to his gross neglect, gross neglect, misfeasance or misfeasance or breach of dutybreach of duty (S. (S. 167C) 167C)


Company vs. LLPCompanyCompany LLPLLP

Legal EntityLegal Entity SeparateSeparate SeparateSeparate

Perpetual Perpetual successionsuccession

YesYes YesYes

No. of No. of membersmembers

Pvt-Min2 Max 50Pvt-Min2 Max 50

Pub-Min3 Max NAPub-Min3 Max NAMin2 Max NAMin2 Max NA

Instrument Instrument RequiremeRequirementsnts

MA to be reg. at MA to be reg. at ROC, Fees for ROC, Fees for filing all doc.filing all doc.

LLPA to be reg. LLPA to be reg. at ROC, Fees for at ROC, Fees for filing all doc. – filing all doc. – Filing fee Less Filing fee Less than company.than company.



Capital Capital RequiremeRequirementnt

1 Lac for Pvt. & 1 Lac for Pvt. & 5 Lacs for 5 Lacs for Public Ltd. Cos.Public Ltd. Cos.

Contribution as Contribution as per LLPAper LLPA

Directors Directors IdentityIdentity

All directors to All directors to obtain DINobtain DIN

Only DP to obtain Only DP to obtain DPINDPIN

NamesNames RegulationRegulation Regulated - other Regulated - other partnership partnership names cannot be names cannot be keptkept

Flexibility Flexibility of businessof business

Regulated by Regulated by MA & AAMA & AA

Regulated by Regulated by LLPA LLPA



Most Most preferred preferred byby

Large Large businessesbusinesses

professionalsprofessionals

ListingListing PossiblePossible Not possibleNot possible

AuditAudit CompulsoryCompulsory Only if turnover Only if turnover exceeds 40L or exceeds 40L or contribution 25 Lcontribution 25 L

ShareholdeShareholdersrs

No consent No consent requiredrequired

Partners consent Partners consent requiredrequired

MeetingsMeetings Regulated by Regulated by Companies ActCompanies Act

Not mandatory Not mandatory



SuffixSuffix 'Limited' or 'Limited' or 'Private 'Private Limited' Limited'

'Limited Liability 'Limited Liability Partnership' or Partnership' or 'LLP' 'LLP'

Common Common SealSeal

CompulsoryCompulsory OptionalOptional

Authority in Authority in conduct of conduct of businessbusiness

Individual Individual director or director or member do not member do not have any have any authority authority

Every partner has Every partner has authority, unless authority, unless the LLPA provides the LLPA provides otherwiseotherwise

FinancialsFinancials B/s, P/L to be B/s, P/L to be filed with ROCfiled with ROC

Statement of A/cs Statement of A/cs and Solvencyand Solvency



Rate of TaxRate of Tax 30% + 3% 30% + 3% cesses. cesses. Surcharge 10% Surcharge 10% if income > Rs. if income > Rs. 1 Cr.1 Cr.

Flat 30% plus Flat 30% plus 3% cesses. No 3% cesses. No surcharge surcharge

MATMAT Applicable @ Applicable @ 15%15%

Not applicable Not applicable

DDTDDT 15% is payable 15% is payable u/s 115 O u/s 115 O

Not applicableNot applicable

Method of Method of accountingaccounting

Accrual only Accrual only Cash or accrual Cash or accrual

RemuneratiRemuneration & on & InterestInterest

No LimitsNo Limits Limits u/s 40bLimits u/s 40b


CA. Pramod JainCA. Pramod Jain

LUNAWAT & CO.LUNAWAT & [email protected]@lunawat.com

98110738679811073867

mailto:[email protected]

Taxation of Limited Liability Partnerships by CA. PRAMOD JAIN FCA, ACS, AICWA, DISA LUNAWAT & CO.

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Transcript of Taxation of Limited Liability Partnerships by CA. PRAMOD JAIN FCA, ACS, AICWA, DISA LUNAWAT & CO.