The concept of a Limited Liability Partnership (‘LLP’) was given legal recognition in India by the passing of the Limited Liability Partnership Act, 2008. Subsequently Budget 2009 introduced the concept of LLP in the Income‐tax Act, 1961 (‘Act’). The article explores the applicability of the various provisions of the Act for an LLP.

1. Treatment of an LLP Under the Act, LLP is proposed to be treated on par with a partnership firm. Accordingly, the definitions of the terms ‘partner’, ‘firm’ and partnership’ are sought to be amended to provide for the same. Hence, all the provisions of the Act as they apply to a partnership firm will apply to an LLP except in cases where specific exceptions have been made for an LLP.
2. Taxability of an LLP An LLP will be liable to tax in the same manner as a partnership firm. The income of the LLP will be liable to tax at the rate of 30%. Section 44AD of the Act, which is proposed to be amended by the Budget 2009 grants an option to an assessee to declare an income of 8% of gross turnover of his business. Such an assessee is not required to maintain books of account. An LLP cannot avail the benefit of section 44AD.
   
3. Allowability of interest on partners’ capital An LLP will be allowed deduction in respect of interest on partners’ capital at the rate of 12% per annum or the rate specified in the partnership deed, whichever is lower.
4. Allowability of remuneration to partners The LLP will be allowed a deduction in respect of remuneration to partners computed as per the following limits:
   • For profits up to Rs. 3 lacs or in case of loss : 90% of the profits or Rs. 1.5 lacs, whichever is more
   • On the remaining profits, if any: 60% of profits in excess of Rs. 3 lacs These limits shall apply irrespective of the nature of business carried on by the LLP.
5. Tax treatment in the hands of the partners of the LLP Any interest and remuneration received by the partners of an LLP shall be taxable in their hands to the extent of deduction allowed to the LLP. Where any interest or remuneration is not allowed as a deduction to the LLP, the same will not be taxable in the hands of the partners.
6. Dividend Distribution Tax As an LLP enjoys the status of a partnership firm, the reward to the partners shall be in the form of interest and remuneration. An LLP, though characterised by limited liability of its partners, is not a company. An LLP will not declare any dividend and hence, it will not be subject to the provisions of Dividend Distribution Tax.
7. Return of income The Return of Income of an LLP will be signed by the designated partner of the LLP. Where the LLP does not have a designated partner or the designated partner cannot sign the return of income for unavoidable reasons, any other partner of an LLP can sign its return of income.
8. Liability of partners Where the tax of any previous year cannot be recovered from an LLP, every person who was a partner of the LLP at any time during the relevant previous year shall be jointly and severally liable for payment of taxes due. However, the liability of the partner shall arise only if it is proven that the nonrecovery of tax is attributable to any gross neglect, misfeasance or breach on the part of the partner.
9. Conversion of a partnership firm into an LLP The Explanatory Memorandum to the Budget 2009 has clarified that as an LLP and a partnership firm is treated at par for tax purposes, the conversion of a partnership firm into an LLP will not have any tax implications. However, the rights and obligations of the partners after conversion into LLP should be same as they were prior to conversion.