Answer is yes, we do have. After introduction of Alternate Minimum Tax (hereinafter referred as the ‘AMT’) by Finance Act 2012 on ‘Limited Liabilities Partnership’ (hereinafter referred as the ‘LLP’) also many professional/corporate/promoters has dispensed with an idea for formation of LLP, as after amendment no tangible benefit could be visualize, other than some cost saving and compliance benefit. Hence, large number of corporate has left the idea of incorporating LLP.

But, when we closely see the provision as contained u/s 115JC of the Income Tax Act 1961 for AMT, which is reproduce as below;

115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.

(2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by—

(i) deductions claimed, if any, under any section (other than section 80P) included in Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” ; [ and]

(ii) deduction claimed, if any, under section 10AA 24b[; and]

The following clause (iii) shall be inserted after clause (ii) of sub-section (2) of section 115JC by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 :

(iii) deduction claimed, if any, under section 35AD as reduced by the amount of depreciation allowable in accordance with the provisions of section 32 as if no deduction under section 35AD was allowed in respect of the assets on which the deduction under that section is claimed.

We can see that AMT is charged on “Total income” of the specified assesee wherein Minimum Alternative Tax (the “MAT”) is charged u/s 115JB on book profit of the company. Total income is to be calculated as per the provision of the Income Tax 1961, i:e after taking into account exemptions under various section viz. section 10(38) etc , but other than those mentioned u/s 115JC, and setting off brought forward of losses, if any. In case of company, book profit is calculated after giving effect of 15 adjustments to net profit. It can be explained by following example.

E.g following are the income for the year of the assesee.

Income from business Rs 400
Income from STCG Rs 15
Income from LTCG (exempt u/s 10(38)) Rs 500
Assesses has B/f of Business losses of Rs 100

 

Solutions 1, if assesee is the company then calculation of MAT and tax are as under;

Net Profit as per books of a/c Rs 915 ( 400+15+500)
Adjustments as per section 115JB Rs Nil
Book Profit Rs 915
Tax on book profit @ 18.5% Rs 169.275

 

Solution 2, if assesee is LLP then calculation of AMT and Tax are as under;

Income from business Rs 400
Less:- B/f losses Rs 100
Net income from business          Rs 300 (A)
Income from Capital Gain
Long term Capital Gain (exempt u/s 10(38))        Rs Nil (B)
Short Term Capital Gain Rs 15 (C)
Total Income Rs 315 (A+C)
Adjustments as provided u/s 115JC Rs Nil
Adjusted total Income Rs 315
Tax on Adjusted total Income @ 18.50% Rs 58.275

MAT tax on company would have been Rs 169.275 and AMT tax on LLP would have been Rs 58.275. Thus, assesee can save Rs 111 (Rs 169.275 – Rs 58.275) by incorporating LLP instead of company.

Hence, it can be said that, there is a tangible benefit that one can get by incorporating LLP instead of company, besides this there are other benefit/advantages of LLP has as compared to company.

Article is written by CA. Rahul Sureka, ACA, CS and can be reached at rahulsureka28@gmail.com or Mobile no 9773450180.

Disclaimer: This article is for general guidance on matters of interest only and does not constitute any professional advice. One should not act upon the information contained in this article without obtaining specific professional advice. Further, no representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this article.

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0 responses to “Do we have any tangible benefit of incorporating LLP, other than some cost saving and reduction of compliance?”

  1. Rahul Sureka says:

    For the purpose of MAT calculation, set off brought forward of business loss or unabsorb depreciation loss, which ever less is only allowed, that too as per books of accounts and not as per income tax. Hence, in given e.x since company do not have any depreciation loss, NIL adjustment is allowed. Hence, illustration given in the article is correct.

    Regards
    Rahul Sureka

  2. S S Gaur says:

    Sir ,
    For calculation of MAT u/s 115JB for companies , set off brought forward loss as per books will also be allowed as in the case of AMT u/s 115 JC for computation of total income , hence for example given above for solution 1 book profit subject to MAT will be Rs 850 i e Rs 915- Rs 100 . brought forward book loss and MAT on it @ 18.5 % will be Rs 159.8.

    thanking you ,
    S S Gaur

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