Provisions on the taxation of an LLP

The provisions are those of the Income-tax Act, 1961, as in force when the paper was set (it has since been replaced by the Income-tax Act, 2025).

Taxed as a firm. "Firm" in the Income-tax Act includes a limited liability partnership, and "partnership" includes an LLP (section 2(23)); an LLP is therefore assessed as a firm, paying tax at the flat rate that each year's Finance Act fixes for firms.

Partners. "Partner" includes a partner of an LLP (section 2(23)(ii)), and a partner's share in the total income of a firm separately assessed as such is exempt in his hands (section 10(2A)).

Alternate minimum tax (Chapter XII-BA). The Chapter reaches an LLP that has claimed a deduction in Part C of Chapter VI-A (deductions in respect of certain incomes) other than section 80P, or under section 10AA or section 35AD (s. 115JEE). For such 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 (nine per cent for a unit in an International Financial Services Centre whose income is solely in convertible foreign exchange) (s. 115JC(1), (4)); 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)). Any amount by which the alternate minimum tax paid exceeds that year's regular income-tax becomes a credit; it is set off in a later year when regular income-tax is higher than the alternate minimum tax, and may be carried forward for no more than fifteen assessment years (s. 115JD); "regular income-tax" means the tax payable under the Act's ordinary provisions.

Designated partner and partners' liability. The designated partner verifies the LLP's return of income, or any partner does where for an unavoidable reason the designated partner cannot, or there is no designated partner (section 140(cd)); and if the LLP's tax cannot be recovered, every partner of the relevant year is jointly and severally liable unless he proves the non-recovery is not due to his gross neglect, misfeasance or breach of duty, tax due including any penalty, interest or other sum payable under the Act (section 167C and its Explanation).