Tax Benefits of LLP and How to Maximise Them
What is LLP?
Before diving into the tax benefits of LLP, let’s first understand what LLP is. LLP is a type of business structure that combines the flexibility of a partnership with the limited liability of a company. It was introduced in India in 2008 and has since become a popular choice for small and medium-sized businesses.
Tax Benefits of LLP:
The income tax rate applicable for LLP registered in India is a flat 30% on the total income. In addition to the income tax, a surcharge is levied on the income tax payable at the rate of 12% when the total income exceeds Rs.1 crore. In addition to income tax a 4% Health & Education surcharge is also applicable on the income of a LLP. Here are the tax benefits for LLP
- Lower tax rate: For income tax purposes, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and the share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, does not apply to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission, or remuneration allowed as deduction.
- Tax benefits for partners: The partners of an LLP are taxed as individuals and not as a separate legal entity. This means that they can take advantage of various tax deductions and exemptions that are available to individuals. For example, partners can claim deductions for expenses related to business travel, education, and health insurance.
- Dividend Distribution Tax (DDT) is not applicable: In the case of a company, if the owners withdraw profits from the company, additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by the company. However, no such tax is payable in the case of an LLP and profits of an LLP can be easily withdrawn by the partners.
- Minimum Alternate Tax (MAT) for LLP: Similar to income tax applicable for a company, LLP is also subject to minimum alternate tax. A minimum alternate tax of 18.5% of adjusted total income is applicable for LLP. Hence, income tax payable by LLP cannot be less than 18.5 per cent (increased by income tax surcharge, education cess and secondary and higher education cess).
How to Maximize Tax Benefits of LLP?
- Keep proper records: It is important to maintain proper records of all financial transactions and expenses to ensure that you can take advantage of all available tax deductions and exemptions.
- Claim deductions: As mentioned earlier, partners of an LLP can claim various tax deductions and exemptions. It is important to keep track of these deductions and claim them to maximize tax benefits.
- Plan investments: LLPs can invest in various tax-saving instruments such as mutual funds, insurance, and provident funds. It is important to plan these investments to maximize tax benefits.
- Consult professionals: It is advisable to consult professionals such as chartered accountants and tax experts to ensure that you are taking advantage of all available tax benefits and complying with all relevant regulations.
How StartUp Portal Business Services can help?
Startup Portal Business Services offers a range of services to help entrepreneurs start and manage their businesses, including LLP registration, tax filing, and compliance services. We can assist you in maximizing the tax benefits of LLP by providing expert advice on tax planning, maintaining proper records, and claiming deductions.
Summary:
LLP offers several tax benefits that entrepreneurs can take advantage of to save money and increase profits. By keeping proper records, claiming deductions, planning investments, and consulting professionals, you can maximize these benefits. StartUpPortal Business Services can assist you in this process by providing expert advice and assistance.