Taxation of an LLP

The provisions are those of the Income-tax Act, 1961, as in force when the paper was set (the Act has since been replaced by the Income-tax Act, 2025).

An LLP is taxed as a firm. Under section 2(23), "firm" includes a limited liability partnership, "partner" includes a partner of an LLP, and "partnership" includes an LLP. An LLP is therefore assessed as a firm, at the flat rate that each year's Finance Act fixes for firms.

Partner's share of profit. A partner's share in the total income of a firm separately assessed as such is exempt in his hands (section 10(2A)), the share being proportionate to his share of profits under the partnership deed. The LLP's income is taxed once, in the LLP's hands.

Alternate minimum tax (Chapter XII-BA). For an LLP, if the regular income-tax for a year is less than the alternate minimum tax, its adjusted total income is treated as its total income and taxed at eighteen and one-half per cent (s. 115JC(1)); the deductions added back are those claimed in Part C of Chapter VI-A (deductions in respect of certain incomes), other than section 80P, and under section 10AA, and the section 35AD deduction less the depreciation that section 32 would have allowed on those assets had no section 35AD deduction been claimed (s. 115JC(2)). The LLP must obtain a report from an accountant, in the prescribed form, certifying that its adjusted total income and alternate minimum tax were computed under the Chapter, and furnish it by the due date for its return under section 139(1) (s. 115JC(3)). The rate is nine per cent instead for a unit in an International Financial Services Centre whose income is solely in convertible foreign exchange (s. 115JC(4)).

Return and liability.

• The return of an LLP is verified by its designated partner, or, where for an unavoidable reason he is not able to verify it, or there is no designated partner, by any partner (section 140(cd)).
• Under section 167C, where tax due from an LLP, or from any other person for a previous year in which that person was an LLP, cannot be recovered, every person who was a partner during the relevant previous year is jointly and severally liable for it, unless he proves that the non-recovery is not due to his gross neglect, misfeasance or breach of duty; tax due includes any penalty, interest or other sum payable under the Act (section 167C and its Explanation).