Limited Liability Partnership (LLP) is an alternate corporate business that offers the twin benefits of limited liability companies and the flexibility of partnership firms. Introduction of LLPs in India is a path breaking reform which is in consonance with the changing environs of the business world. In todays date the LLP is the one of the common entity types which is choose by most of the start-ups. But many people have doubts regarding its taxability, hence today I am writing this article stating taxability of LLP.

Before staring please keep in mind that from the point of view of taxation, the LLPs are considered as Partnership firm only. Hence many points are similar in taxation of firm and LLPs.

Limited Liability Partnership (LLP)

Tax Rates (For AY 2020-21)

Long – term capital gain 20 %
Short – term capital gain u/s 111A 15 %
Other Income 30 %
  • Surcharge – 12 % (where taxable income including capital gain exceeds Rs. 1 crore). It is subject to Marginal relief.
  • Health and Education Cess – 4 % (on the amount of income tax and surcharge)
  • Alternative Minimum Tax – Tax payable by firm can’t be less than 9% (Plus Cess) of adjusted total income as per Sec. 115 JC.

Tax Payment method

Tax can be paid in any of the following mode – Physical Mode (payment by furnishing the hard copy of the challan at the designated bank) & E Payment Mode (making payment by using the electronic mode)

Note – E Payment mode is mandatory for those who is liable to get its accounts audited under Section 44AB of the Income Tax Act, 1961.

Advance Tax – to be calculated on the basis of expected tax liability of the year. Advance tax is to be paid in installments as given below –

Status By 15th June By 15th September By 15th December By 15th March
Taxpayers (other than who opted for presumptive scheme) Up to 15 % of advance tax Up to 45 % of advance tax Up to 75 % of advance tax Up to 100 % of advance tax
Taxpayers (who opted for presumptive scheme Sec.44AD/44ADA) Nil Nil Nil Up to 100 % of advance tax

* Any tax paid till 31st March is treated as Advance Tax.

Return Filing Provisions

  • It’s mandatory for every LLP to file the return of income irrespective of amount of income or loss.
  • E filing is mandatory for LLP’s with or without digital signature. Please note that filing of return of income under Electronic Verification Code (EVC) is not available for LLPs
  • LLP liable to get its account audited under section 44AB shall furnish return electronically under digital signature.
  • Signing of IT Return – by Designated Partner – however if for any unavoidable reason designated partner can’t sign or where there is not designated partner, any partner may sign the return
  • Form to be filed is (ITR 4 or ITR 5 – As per the case)

Due dates for filing of return

Particulars Due Date of filing of Return
A firm who is required to get its accounts audited under the Income Tax Act or under any other law September 30th of the AY
A firm who is required to furnish a report in Form No. 3CEB under section 92E November 30th of the AY
In any other cases July 31st of the AY

# As per LLP Act, 2008 provides every LLP having turnover exceeds Rs. 40 Lakhs or whose Capital contribution exceeds Rs. 25 Lakhs are required to annually get their accounts audited by a chartered accountant. As per Income Tax Act, 1961 provides every LLP having turnover exceeds Rs. 100 Lakhs are required to annually get their accounts audited by a chartered accountant

Note: The due date has been extended by the government due to COVID -19, the revised due dates are as under:

Particulars Due Date of filing of Return
A firm who is required to get its accounts audited under the Income Tax Act or under any other law 31 October, 2020
A firm who is required to furnish a report in Form No. 3CEB under section 92E 30 November, 2020
In any other cases 30 November, 2020

Computation of Income

While computing income tax for LLPs, we should consider the income from House Property (if any property owned by firm or LLP & received rent from that), Capital Gains (at the time of dissolution of asset LLP as case may be) & Other Sources (like interest on investments held by the firm or LLP) also in addition to the income earned from Business or Profession.

√ At the time of calculating the total Business Income –

Deduct all the allowable expenses for business reduce allowable partner’s salary and interest from that profit.

Provisions for partner’s interest in case of LLP-

Allowed for deduction if the following conditions are satisfied:

  1. Payment of interest is authorized by the partnership deed
  2. Rate shouldn’t exceed 12 %
  3. Payment should be for the period after the partnership deed constitution.

Partner’s salary / remuneration in case of LLP –

Allowed to reduce net profit if following conditions are satisfied:

  1. Remuneration should be paid to working partners
  2. It is authorized by the partnership deed
  3. It shouldn’t related to period prior to partnership deed
  4. Remuneration should be within permissible limit.

Permissible Limit for deduction of remuneration of partner in case of LLP –

Book Profit Amount deductible u/s 40(b) (maximum)
If book profit is Negative Rs 1.5 Lakhs or 90% of book profit whichever is more
If book profit is Positive
On First Rs. 3 Lakhs Rs 1.5 Lakhs or 90% of book profit whichever is more
On remaining balance 60 % of Book Profit

Book Profit – Net profit less other income and don’t adjust brought forward losses and deduction u/s 80C to 80U plus add partner’s remuneration.

Other income say house property, capital gains and others sources– to be calculated similarly as calculated for Individual.

Aggregate all the income and need to deduct the allowable deductions under Section 80G, 80GGA, 80IA, 80IC, 80ID, 80IE, 80JJA & brought forward losses or unabsorbed depreciation as case may be, if any from the Income.

Finally we will get Net Taxable Income & hence tax is to be computed on this income.

Other Points to be kept in mind-

  1. 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
  2. Losses of the firm should be carried forward and not allowed to allocate
  3. LLP’s can’t claim benefits of section 44AD by using presumptive taxation

I hope this article will clear all the doubts with respect to taxation o LLP.

 Author: Rahul Hakani, Advocate

 Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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0 Comments

  1. sai ganesh lanke says:

    Please any one clarify this

    Suppose if the LLP incurs a loss of Rs.10,000 then what should be the remuneration paid to partners

  2. DM says:

    Hi, please explain the remuneration to partners in greater detail. For example, my LLP has 2 Designated Partners;I am one of them. For the first 3 lakh rupees of revenue, can we both draw Rs 1,50,000 as the remuneration for the year? If so, what is the tax implication on both ofus Designated Partners and what is the tax implication for the LLP

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