The Limited Liability Partnership(LLP) is a hybrid form of business, having features of both General Partnership and a Body Corporate. It is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. It is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
Prior to Finance Bill 2011, an LLP being treated as a firm for taxation and not liable to MAT, Dividend Distribution Tax and Surcharge.
New chapter XII- BA
The Finance Bill, 2011 seeks to tax certain LLPs differently i.e. LLP’s claiming income based deductions given under Chapter VI-A (C) or under Section 10AA. Since the method given for computation of ‘Adjusted Total Income’ does not add back all the deductions claimed by an LLP into its Total Income, but only income based deductions given under Chapter VI-A (C) or under Section 10AA. Therefore, proposed provisions of AMT shall only affect the LLP claiming any of these deductions.
Key Points you should know
- Regular Income Tax
As defined under Section. 115JF(d) regular income-tax is the tax payable by an LLP on its total income for a previous year in accordance with the normal provisions of the Income-tax Act, 1961 (i.e. before giving effect any of the provisions of the Chapter XII-BA).
- Adjusted Total Income
Adjusted total income as specified under Section 115JC (2) shall be the total income of the LLP as per income tax provisions in normal course, that is, before giving effect any of the provisions of the Chapter XII- BA, as increased by -
- Deductions claimed, if any, under any Section included in Chapter VI-A under the heading “C – Deductions in respect of certain incomes” (Section 80HH to 80RRB); and
- Deduction claimed, if any, under Section 10AA in respect of SEZ units.
- Income based Deductions
Income based deductions given under Chapter VI-A(C), which are applicable on LLPs, are deductions u/s 10AA, 80IA, 80 IAB, 80IB, 80IC, 80ID, 80IE, 80JJA, 80LA and 80Q.
- Determination of Adjusted Total Income and AMT
Rate of AMT
A new Chapter XII-BA under the Income Tax Act 1961 is being introduced which provides for levy of Alternate Minimum Tax @ 18.5% on the adjusted total income of Limited Liability Partnerships. The effective rate of AMT after taking in account education cess will be 19.055%. However, surcharge shall not be applicable, irrespective of the quantum
of adjusted total income.
Applicability of AMT
As per the provisions of the chapter XII-BA, where the regular income tax payable by a LLP for a particular financial year is less than the corresponding alternate minimum tax computed at the rate of 18.5% on its adjusted total income; such alternate minimum tax shall be deemed to be the income tax liability of such LLP.
Credit of AMT
Tax credit is excess of AMT over normal income tax payable for that year. No Interest should be allowable on such credit. The carry forward of such credit is upto 10 years succeeding from the end of assessment year in which tax credit is allowed. Set off is allowed in the assessment year in which normal tax on LLP exceeds AMT. Set off of tax credit would be upto the amount of tax which is in excess of AMT. Education cess and higher education cess is not allowed to be carried forward. If the assessee fails to utilise credit within 10 years, the same shall lapse.
Other misc. points to remember
- While computing AMT, brought forward losses and unabsorbed depreciation both shall be taken into account.
- For the calculation of AMT brought forward loss and unabsorbed depreciation liable to be set-off shall be in accordance with normal provisions of the Income-tax Act, 1961.
- On conversion of company to LLP, its MAT credit can’t be set-off against AMT as both are different form of tax.
Chartered Accountant is required to certify computation of adjusted total income and AMT. Report is required to be obtained on or before due date of filing of return u/s 139(1).
However, the new Chapter has been made operative from 1.4.2012 and will, accordingly, apply in relation to the assessment year 2012-2013 and subsequent years. Hence, there will be no AMT levy in the assessment year 2011-2012.