Professional Documents
Culture Documents
- Tushar Mittal
Introduction
Limited Liability partnerships concept was introduced in order to adopt : a corporate form With Organizational Flexibility Tax Status of Partnership Limited Liability for its Partner.
Features
Perpetual Succession Separate Legal Entity from its Partner Liability of LLP, to the full extent of its Assets Liability of Partners of LLP, limited to their agreed contribution in the LLP. Registered Body Corporate.
Taxation Issues
The concept shows the way one to the following two implications in respect of tax treatment: First way: LLP will pay tax on its profit after deduction of business expenditure, salary and interest paid to partners. Partners will be liable to pay tax on salary and interest receipts, whereas the share in profit is exempt. (same as current provisions of Income Tax Act,1961)
Taxation Issues
Second way: The profit in the hands of the LLP partners will be taxed. The LLP will have Tax Transparency. In other words, LLP is not subject to taxation. Only the members are liable to taxation.
Taxation Issues
Out of these two options the second option appears to be logical and acceptable on account of the following two reasons:The Naresh Chandra Committee Report as well as Concept Paper on LLPs which was released by the Minister of Company Affairs had clearly recommended tax transparency for LLPs.
i.
Taxation Issues
ii. The Bill has vide its first Schedule (Clause No. 5) prohibited partners of LLPs from accepting any remuneration. (This implies that they will be subject to the Income Tax in respect of their share of profits received by them.)
CONCLUSION
LLPs have been in trend in various other countries such as UK, USA, Australia, Singapore etc. It is the form of business entity, which allows individual partners to be restricted from joint liability of partners in a particular firm. This is a great relief to the partners, particularly professional like Company Secretaries, Chartered Accountants, Cost Accountants, Advocates and other professionals.
CONCLUSION
But it is necessary to made suitable changes in the provisions of income tax related to taxations issues, because taxation is one of the major motivational factor other than limited liability for the partner of LLPs as individual partner can take benefit of Slab Rates of income tax. The introduction of LLPs in the India is a good beginning towards a long journey.
CONCLUSION
The hybrid structure of LLP will facilitate entrepreneurs, service providers and professionals to organize and operate in an innovative and efficient manner for effectively competing in the global market.