Large business entities willing to convert into Limited Liability Partnerships (LLPs) will have to wait for some more time with the government saying that it would consider raising the limit for capital gains tax exemptions as part of the Direct Taxes Code.
“We have started with a turnover limit of Rs 60 lakh. It is only a starting point. It will be raised once we implement Direct Taxes Code (DTC) next year,” said a senior Income Tax official.
To encourage professionals to opt for LLPs, Finance Minister Pranab Mukherjee in his budget proposed to exempt transfer of assets to LLP from capital gains tax provided turnover of private or unlisted company is below Rs 60 lakh.
“The turnover limit of Rs 60 lakh is restrictive and will not encourage larger professional firms to covert into LLPs. It should be raised to a reasonable level. The objective should be to encourage multi-dimensional firms which can have partners from disciplines like law, accountancy, engineering, medicine etc,” said Diljeet Titus, senior partner of law firm Titus and Co.
Expressing similar opinion, M Lakshminarayanan, national head of tax, Deloitte, said, “Though the exemption to LLPs on capital gains tax is a welcome step. It (turnover limit of Rs 60 lakh) will discourage large scale firms to enter this form of business. LLPs may not be able to achieve the scales of LLPs in developed countries”.
The government proposes to introduce DTC, which will replace the Income Tax Act, from 2011-12.