How are partnerships taxed?
A partnership firm and a limited liability partnership are taxed at a flat rate of 30 per cent (excluding applicable surcharge and cess) on their income. Thereafter, the share of profit that a partner takes out from the partnership firm or an LLP is exempt in the hands of the partner (including the partners based overseas, subject to the double taxation avoidance agreement).
The income earned by partners is then assessed and taxed as if a partner were self-employed and not as an employee of an organisation.
Further, a partnership firm and an LLP are required to have a permanent account number (PAN) in accordance with the provisions of the Income Tax Act 1961.Reporting and transparency requirements
To what extent must partnerships, LLPs and similar structures file accounts and other documents and information with a government agency?
An LLP is required to file statement of account and solvency with the Ministry of Corporate Affairs (MCA) within 30 days from the end of six months of the financial year to which the statement of accounts and solvency relate to, and an annual return within 60 days from the end of its financial year. Further, an audit is required only after passing a turnover of 4 million rupees or when contribution, by the LLP partners, exceeds 2.5 million rupees.
The statement of account and solvency and the annual return of an LLP can be viewed by carrying out a public search on the website of MCA. However, the partnership agreements filed by an LLP are not available on the MCA website for public review.
The Income Tax Act 1961 provides that partnership firms and LLPs involved in a profession with gross receipts of more than 5 million rupees and those involved in doing business and having sales turnover exceeding 10 million rupees are required to have a tax audit.
The details of the partners of a registered partnership firm and an LLP are available for the public to inspect.Ownership and membership
Can anyone be a partner, and, if not, who can and cannot? Can bodies corporate or other partnerships own a partnership?
Any individual or body corporate can become a partner provided that such individual has not:
- been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;
- been declared an undischarged solvent; or
- applied to be adjudicated as an insolvent and his or her application is pending.
Further, a foreign entity can be a partner in an LLP and make investment only in sectors where 100 per cent foreign direct investment is allowed in terms of the extant foreign direct investment policy.Execution of documents
How do partnerships and LLPs execute documents? Must all partners sign? Can the partnership or LLP sign in its own name?
Partnership firms and LLPs typically execute the documents in their own name through the partners or nominee who have been authorised in this regard, as per the agreement between the partners. Any act performed by a partner as per the authority granted to such persons binds the firm and its partners.
Law stated dateCorrect on:
Give the date on which the above information is correct.
11 June 2020.