LLPs to be taxed on the pattern of partnership firms

The government today came out with the tax structure for a new form of business entity-- limited liability partnership (LLP)-- and proposed taxing such entities on the lines of partnership firms.

A partnership firm is taxed as an entity and not in the hands of partners. This means, the partners in an LLP would not be taxed and the LLP as whole would be taxed.

This proposal in the Budget today, effective from current fiscal, provides relief and opportunity to many entrepreneurs willing to form an LLP but are unable and reluctant due to lack of clarity on the tax regime.

As regards conversion of existing partnerships to LLP is concerned, the new entity will have no tax implications if assets and liability of partners remain the same after conversion.

Limited liability partnership (LLP), which is a hybrid of the characteristics of companies and partnership firms, allows having unlimited number of partners with liability limited to the extent of the stake held by the partners.

The new business structure will benefit professionals like chartered accountants company secretaries the most as they will now be able to provide all services at one-stop window.

In case an LLP liquidates, every partner will be jointly liable for tax payment subject to certain conditions.