1
Taxation on LLPs on 7th July 2009, 4:16 pm
rajanip
LLP TAXATION - BUDGET 2009
LLP’s will be treated as Partnership Firms for the purpose of Income Tax w.e.f assessment year 2010-11
No surcharge will be levied on income tax.
Profit will be taxed in the hands of the LLP and not in the hands of the partners.
Minimum Alternate Tax will not be applicable for LLP.
No Dividend Distribution Tax.
Remuneration to partners will be taxed as “Income from Business & Profession”.
No capital gain on conversion of partnership firms into LLP.
Designated Partners will be liable to sign and file the Income Tax return.
The Budget 2009-10 has introduced the provisions regarding taxation aspect of the newly introduced form of business Limited Liability Partnership.
As per the Budget 2009-10, LLP will be treated as Partnership firms for the purpose of Income Tax and will be taxed like a partnership firm.
Change in Definition of Firm, Partner & Partnership
The Budget 2009-10 has amended the definition of Firm and Partners in the following manner:
Firms shall have the meaning assigned to it in the India Partnership Act 1932 and shall include a limited liability Partnership as defined in the Limited Liability Partnership Act 2008.
Partner shall have the meaning assigned ot it in the Indian Partnership Act 1932 and sall include:
• Any person, being a minor, has been admitted to the benefits of partnership ; and
• A partner of a limited liability partnership as defined in the Limited Liability Partnership Act 2008.
Partnership shall have the meaning assigned to it in the India Partnership Act 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act 2008.
Taxation aspect of Limited Liability Partnership
Tax rate:
30% flat tax rate + 3% education cess
No Minimum Alternate Tax & Dividend Distribution Tax
Eligibility (section 184):
In order for Limited Liability Partnership to be assessed as firm as Income Tax Act, it has to satisfy the following criteria
The LLP is evidenced by an instrument i.e. there is a written LLP Agreement.
The individual shares of the partners are very clearly specified in the deed.
A certified copy of LLP Agreement must accompany the return of income of the LLP of the previous year in which the partnership was formed.
If during a previous year, a change takes place in the constitution of the LLP or in the profit sharing ratio of the partners, a certified copy of the revised LLP Agreement shall be submitted along with the return of income of the previous years in question.
There should not be any failure on the part of the LLP while attending to notices given by the Income Tax Officer for completion of the assessment of the LLP.
LLP can claim the following deductions:-
Interest paid to partners, provided such interest is authorised by the LLP Agreement.
Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will be allowed as a deduction if it is paid to a working partner who is an individual.
The remuneration paid to such working partner must be authorised by the LLP Agreement and the amount of remuneration must not exceed the given limits
When section 184 is not complied with, the consequence is that no deduction towards interest and remuneration is allowed. This is the mandate of the section 185.
Signing of Income tax Return:
The designated partner shall be responsible for signing the income tax return of LLP , where for unavoidable reasons, such designated partner is not able to sign the same or where there is no designated partner, any partner will sign the return.
No capital gain on conversion
LLP and general partnership is being treated as equivalent (except for recovery purpose) in the Act, the conversion from a general partnership firm to an LLP will have no tax implication, if the rights and obligation of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. If there is a violation of these conditions , the provision of capital gain will apply.
Source: llponline.in
2 LIMITED LIABILITY PARTNERSHIP-PART-XXXIII - (Registration and Effect of Conversion) on 16th October 2010, 6:00 pm
Preetpal Singh
CSoC Well-Wisher
Section 58 - Registration and effect of conversion
Section 58 of the LLP Act, 2008 seeks to provide the requirement and manner pursuant to which a firm, private company or an unlisted public company shall be allowed to be converted into a LLP. It also seeks to provide that the converted LLP shall, within fifteen days of the date of registration, inform the concerned Registrar of Firms or Registrar of Companies, as the case may be, with which it was registered about the conversion and of the particulars of the limited liability partnership in such manner and form as the Central Government may prescribe. The section also seeks to provide that on such conversion all property of the erstwhile entity shall vest in the LLP and the erstwhile entity shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.
Section 58 prescribes the statutory basis for the registration of LLP arising out of conversion from a firm, private company or an unlisted public company under section 55, 56 or 57 respectively.
Duties of Registrar [Sub-section (1)]
It provides for the duties of Registrar and the LLP for registration of conversion by Registrar and its intimation by the LLP to the Registrar of firms or companies, as the case may be.
The Registrar on satisfying that all the provisions have been complied with, register the document submitted under schedules and issue a certificate of registration in such form as the registrar may determine stating that the LLP is, on and from date specified in the certificate, registered under this Act provided that the LLP shall, within fifteen days of the date of registration, inform the registrar of firms or Registrar of Companies as the case may be about such conversion.
Position of Partners [Sub-section (2)]
Upon conversion, the partners of the erstwhile firm or shareholders of the erstwhile company shall become the partners of the LLP and shall be bound by the provisions of applicable schedule (II, III, or IV, as the case may be) as they are no longer partner or member of firms or company, dissolved as a result of such conversion.
Effect of Registration [Sub-section (3)]
Sub-section (3) deals with the effect of registration of conversion and states that w.e.f. the date of registration, the consequences and effect of conversion shall be according to second, third or fourth schedule. These schedules provide for the same.
Date of Registration [Sub-section (4)]
On and from the date of registration specified in the certificate of registration, it has been provided that -
(a) there shall be a LLP by the name specified in the certificate of Registration
(b) all property of firm or company shall be transferred to and shall vest in the LLP
(c) the firm or the company shall be deemed to be dissolved and removed from the records of the Registrar of firms or Registrar of Companies as the case may be
Conversion of LLP into a Company
Part IX of Companies Act, 1956 contain provisions for companies authorized to register under the Companies Act, 1956. Section 565 to 581 contain provisions in relation to companies capable of being registered, requirement for registration, authentication of statements, change of name, addition of 'limited' or 'private limited' to name, vesting of property on registration, etc. Though Companies Act does not specifically provide for conversion of LLP into a company, it appears that there is no restriction on such conversion. Thus, a LLP can be converted into a company limited by shares by registration under Part IX of the Companies Act, 1956 subject to the provisions of section 565 to 581.
Prescribed Fees
Annexure B of LLP Rules prescribe the fees for registration of LLP including conversion of a firm or a private limited company or an unlisted public company into a limited liability partnership (LLP) as follows-
(a) Limited Liability Partnership whose contribution does not
exceed Rs. 1 lakh
500/-
(b) Limited Liability Partnership whose contribution does not
exceed Rs. 1 lakh but does not exceed Rs 5 Lakhs
2000/-
(c) Limited Liability Partnership whose contribution does not
exceed Rs. 5 lakh but does not exceed Rs 10 lakhs
4000/-
(d) Limited Liability Partnership whose contribution does not
exceed Rs. 10 lakh
5000/-
Penalties
(a) Penalties for contravening provision relating to notice of conversion in correspondence
Clause 17(2) of Second Schedule, clause 15(2) of Third schedule and clause 15(2) of Fourth Schedule prescribe penalty for default in complying with the provision of sub clause (1) thereof in relation to publication of notice of such conversion in all official correspondence of LLP so converted for a period to twelve months. The offence is a continuing default and the punishment in the form of monetary fine is a one time fine as well as fine for each day of default till it continues. The penalty prescribed is as under-
(a) Minimum fine
Rs. 10,000
(b) Maximum fine
Rs. 1,00,000
(c) further fine for continuing default till the default continues-
(i) minimum fine
Rs. 50 for every day
(ii) maximum fine
Rs. 500 for every day
(from first day after which the default continues).
(b) General penalty
Section 74 provides for a general penalty. Accordingly, any person guilty of a offence under this the Act for which no punishment is expressly provided shall be liable to a fine which may extend to five lakh rupees but which shall not be less than five thousand rupees and with a further fine which may extend to fifty rupees for every day after the first day after which the default continues.
Section 58 of the LLP Act, 2008 seeks to provide the requirement and manner pursuant to which a firm, private company or an unlisted public company shall be allowed to be converted into a LLP. It also seeks to provide that the converted LLP shall, within fifteen days of the date of registration, inform the concerned Registrar of Firms or Registrar of Companies, as the case may be, with which it was registered about the conversion and of the particulars of the limited liability partnership in such manner and form as the Central Government may prescribe. The section also seeks to provide that on such conversion all property of the erstwhile entity shall vest in the LLP and the erstwhile entity shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.
Section 58 prescribes the statutory basis for the registration of LLP arising out of conversion from a firm, private company or an unlisted public company under section 55, 56 or 57 respectively.
Duties of Registrar [Sub-section (1)]
It provides for the duties of Registrar and the LLP for registration of conversion by Registrar and its intimation by the LLP to the Registrar of firms or companies, as the case may be.
The Registrar on satisfying that all the provisions have been complied with, register the document submitted under schedules and issue a certificate of registration in such form as the registrar may determine stating that the LLP is, on and from date specified in the certificate, registered under this Act provided that the LLP shall, within fifteen days of the date of registration, inform the registrar of firms or Registrar of Companies as the case may be about such conversion.
Position of Partners [Sub-section (2)]
Upon conversion, the partners of the erstwhile firm or shareholders of the erstwhile company shall become the partners of the LLP and shall be bound by the provisions of applicable schedule (II, III, or IV, as the case may be) as they are no longer partner or member of firms or company, dissolved as a result of such conversion.
Effect of Registration [Sub-section (3)]
Sub-section (3) deals with the effect of registration of conversion and states that w.e.f. the date of registration, the consequences and effect of conversion shall be according to second, third or fourth schedule. These schedules provide for the same.
Date of Registration [Sub-section (4)]
On and from the date of registration specified in the certificate of registration, it has been provided that -
(a) there shall be a LLP by the name specified in the certificate of Registration
(b) all property of firm or company shall be transferred to and shall vest in the LLP
(c) the firm or the company shall be deemed to be dissolved and removed from the records of the Registrar of firms or Registrar of Companies as the case may be
Conversion of LLP into a Company
Part IX of Companies Act, 1956 contain provisions for companies authorized to register under the Companies Act, 1956. Section 565 to 581 contain provisions in relation to companies capable of being registered, requirement for registration, authentication of statements, change of name, addition of 'limited' or 'private limited' to name, vesting of property on registration, etc. Though Companies Act does not specifically provide for conversion of LLP into a company, it appears that there is no restriction on such conversion. Thus, a LLP can be converted into a company limited by shares by registration under Part IX of the Companies Act, 1956 subject to the provisions of section 565 to 581.
Prescribed Fees
Annexure B of LLP Rules prescribe the fees for registration of LLP including conversion of a firm or a private limited company or an unlisted public company into a limited liability partnership (LLP) as follows-
(a) Limited Liability Partnership whose contribution does not
exceed Rs. 1 lakh
500/-
(b) Limited Liability Partnership whose contribution does not
exceed Rs. 1 lakh but does not exceed Rs 5 Lakhs
2000/-
(c) Limited Liability Partnership whose contribution does not
exceed Rs. 5 lakh but does not exceed Rs 10 lakhs
4000/-
(d) Limited Liability Partnership whose contribution does not
exceed Rs. 10 lakh
5000/-
Penalties
(a) Penalties for contravening provision relating to notice of conversion in correspondence
Clause 17(2) of Second Schedule, clause 15(2) of Third schedule and clause 15(2) of Fourth Schedule prescribe penalty for default in complying with the provision of sub clause (1) thereof in relation to publication of notice of such conversion in all official correspondence of LLP so converted for a period to twelve months. The offence is a continuing default and the punishment in the form of monetary fine is a one time fine as well as fine for each day of default till it continues. The penalty prescribed is as under-
(a) Minimum fine
Rs. 10,000
(b) Maximum fine
Rs. 1,00,000
(c) further fine for continuing default till the default continues-
(i) minimum fine
Rs. 50 for every day
(ii) maximum fine
Rs. 500 for every day
(from first day after which the default continues).
(b) General penalty
Section 74 provides for a general penalty. Accordingly, any person guilty of a offence under this the Act for which no punishment is expressly provided shall be liable to a fine which may extend to five lakh rupees but which shall not be less than five thousand rupees and with a further fine which may extend to fifty rupees for every day after the first day after which the default continues.
3 Re: Taxation on LLPs on 16th October 2010, 6:16 pm
mione
CSoC Well-Wisher
thanx for sharing
4 Re: Taxation on LLPs on 16th October 2010, 6:24 pm
praveen999
CSoC Master
thanks for sharing..............
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