TAX CALCULATION FOR LIMITED LIABILITY PARTNERSHIP (LLP)
Escaping from Tax liability is next to impossible, so how can LLPs can be out of the ambit of Taxation. Budget 2009-10 first time introduced the tax structure applicable to newly borne concept of LLPs and started treating the LLPs as partnership firm for the purpose of calculation of Tax.
As per section 184 of Income Tax Act, 1961(“IT Act”), Limited Liability Partnership shall be assessed as partnership firm, if it satisfied the following criteria:
There must be written LLP agreement.
- Profit sharing ration must be clearly specified.
- A certified copy of LLP Agreement must accompany the return of income of the LLP
- If during the previous year, any change take place as to the profit sharing ratio, or constitution of LLP, then a certified true copy of amended LLP agreement shall accompany to the return of Income of the previous year in question.
If conditions of section 185 are not complied with, then no deduction towards interest and remuneration is allowed while computing profit/loss for tax purpose.
In the Budget 2011-12, a new chapter XII BA was inserted in IT Act which stipulates to levy Alternate Minimum Tax (“AMT”) calculated at the rate of 18.5% on adjusted total income.
Note: Adjusted total income shall be the total income as increased by the deductions claimed under any section included in chapter VI-A ( C ) (deductions in respect of certain income) and deductions claimed under section 10AA (deduction available to SEZ units).
Rate: 18.5% + Education Cess (3%) i.e. 19.05%
How to calculate AMT in LLP:
In order to determine AMT in LLP, followings steps to be kept in mind:
Income Tax liability of the LLP as per the normal provisions should be found out under the Income Tax Act.
- Adjusted total income of the LLP under the section 115JC should be calculated.
- Now, Calculate AMT on the adjusted total income of the LLP at the rate of 18.5% + 3% education cess, with the effective rate being 19.05%. The surcharge in the tax rate is not applicable in the case of LLP.
- Suppose, if the income tax liability of the LLP under the normal provision is equal to AMT, then AMT will not apply. If the amount of AMT is more than the adjusted total income, then the income determined will be deemed as total income of the LLP for the previous year.
The tax credit is allowed to the extent of the excess of the alternate minimum tax paid over the regular income tax and the same will be carried forward for a maximum period of 10 years from the year in which such credit arose.
Surcharge is not applicable on LLPs