Govt exempts LLP firms from paying capital gains tax

The government today exempted small companies taking the Limited Liability Partnership (LLP) route from paying capital gains tax, in a step to boost the new business structure introduced two years ago.

"To facilitate the conversion of small companies to LLPs, I propose that this will not be subject to capital gains tax," Finance Minister Pranab Mukherjee said while presenting the Budget for 2010-11 in Parliament.

The proposal, effective from the current financial year provides relief and opportunity to many small entrepreneurs willing to convert their businesses to LLP firms, but are reluctant due to lack of clarity on the tax regime.

"Our effort to promote LLPs during this year got a shot in the arm," Corporate Affairs Minister Salman Khursheed said after the Budget presentation.

Exempting small companies from paying capital gains tax, Deloitte National Head of Tax M Lakshminarayanan said, would encourage more companies to adopt the new business form.

LLP, which is a hybrid of companies and partnership firms, allows unlimited number of partners in an entity with their liability restricted to the extent of the stake held by them.

The new business structure benefits professionals like chartered accountants and company secretaries the most as they are able to provide all services at one-stop window.