The Limited Liability Partnership Act, 2008 has come into effect in 2009. LLP Rules (except some rules dealing with conversion) and forms have been notified w.e.f. 1st April, 2009.
The Income tax Act has been amended to incorporate the taxation scheme of LLPs in the Income Tax Act on the same lines as the taxation scheme currently prevalent for general partnerships, i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners. A “limited liability partnership” and a general partnership will be accorded the same tax treatment.
It is provided that the word ‘partner’ shall include within its meaning a partner of a limited liability partnership, the word ‘firm’ shall include within its meaning a limited liability partnership and the word ‘partnership9 shall include within its meaning a limited liability partnership as these terms have been defined in the Limited Liability Partnership Act, 2008.
The LLP Act provides for nomination of “designated partners” who have been given greater responsibility. It is provided that the designated partner shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.
It is also provided that in case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.
As an LLP and a general partnership is being treated as equivalent (except for recovery purposes) in the Act, the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations 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 provisions of section 45 shall apply.
Applicability – This amendment has been made applicable with effect from 1st April, 2010 and will accordingly apply in relation to assessment year 2010-2011 and subsequent assessment years.
Related posts:
- How is Limited Liability Partnership (LLP) is Taxed?
- How to Incorporate a New LLP (Limited Liability Partnership)
- Taxation of Partnership Firms
- Government to Allow Companies with Secured Loans to Convert into Limited Liability Partnerships!
- Partnership Deed | Dissolution Deed | Other Partnership Agreements and Forms
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