Overview

Maintaining compliance in a Limited Liability Partnership (LLP) necessitates the consistent submission of returns to avoid substantial penalties. LLPs enjoy a more manageable annual compliance load when contrasted with private limited companies. Nevertheless, the repercussions for non-compliance can be noteworthy, with Private Limited companies potentially facing fines of INR 1 lakh, whereas LLPs might be subject to penalties as high as INR 5 lakh.

What is LLP Compliance?

A Limited Liability Partnership (LLP) is a registered business structure that combines elements of both a company and a partnership. It provides partners with protection against personal liability, which is limited to the capital they invest. The operation of an LLP is regulated by the Limited Liability Partnership Act of 2008.

While LLPs generally have fewer and simpler compliance requirements, there are specific mandatory obligations that LLPs must meet under this Act. Failing to meet these obligations could result in consequences for the LLP, including potential legal action.

Benefit

Enhanced Credibility: Annual compliance bolsters an LLP's credibility, facilitating loan approvals and fulfilling diverse prerequisites.

Financial Track Record: These filings establish a financial history for LLPs, making them more appealing to potential investors and partners.

Sustained Activity and Avoiding Penalties: Maintaining consistent compliance ensures that LLPs remain operational and penalty-free, sidestepping additional charges.

Simplified Conversion and Closure: Regular filings streamline the process of converting LLPs into alternative business structures and expedite partnership dissolution.

Tax & Process

Taxation of LLPs in India:

Distinct Taxation: LLPs have a unique tax structure compared to traditional partnerships and companies.

LLP Income Tax: The income of an LLP is subject to a flat rate of 30% (plus applicable surcharge and cess) on the total income.

Partners' Taxation: Partners of an LLP are not taxed on the LLP's earnings. Instead, they are liable for taxation when these earnings are distributed as profits or remuneration.

LLP Advantage: An advantage of LLPs is their exemption from dividend distribution tax, a tax imposed on companies when they pay dividends to shareholders.

Unrestricted Partner Count: There is no upper limit on the maximum number of partners an LLP can have.

Designated Partners: The LLP agreement specifies the rights and responsibilities of designated partners, who are directly accountable for adhering to the LLP Act and the agreement's provisions.

Documents Required

Incorporation Document: The document that signifies the formation of the LLP.

Partner Names: A record of the names of all partners in the LLP.

Payment Evidence: Proof of the fees paid by the LLP.

Statement of Account & Solvency: A statement indicating the financial position and solvency, submitted annually along with the LLP's return to the Registrar.

Procedure

LLP Compliance Requirements:

LLPs, operating as separate legal entities, have specific compliance responsibilities, overseen by the Designated Partners. The key compliance components encompass:

Maintenance of Proper Book of Accounts:

Accurate financial record-keeping is vital for assessing an LLP's financial health and performance.

Filing of Annual Return (LLP Form 11):

Deadline: Within 60 days of the financial year's conclusion (by May 30th).

Filing Form 11 is imperative for ensuring ongoing operations, as failure to meet this obligation can delay winding-up proceedings.

Penalty for Late Filing: Rs.100 per day of delay, applicable from the due date until the actual filing.

Filing of Statement of Accounts (LLP Form 8):

Due Date: Within 30 days from the conclusion of six months after the financial year ends.

Form 8 must be digitally signed by two designated partners and certified by a company secretary, chartered accountant, or cost accountant.

Form Components:

Part A - The Solvency Statement: Reflects the LLP's financial health.

Part B - Statement of Expenditure & Income, Statement of Accounts: Contains income, expense, and comprehensive account details.

Penalty for Late Filing: Rs.100 per day of delay.

Audit and Tax Filing Requirements for LLPs:

Tax Audit: Compulsory for LLPs with an annual turnover exceeding Rs. 40 lakhs or a contribution surpassing Rs. 25 lakhs, with a tax return filing deadline of September 30th.

Note: The threshold limit for a tax audit has been raised to Rs. 5 crore under certain conditions from Assessment Year 2021-22 onwards.

Tax Filing Deadline (Without Tax Audit): For LLPs not necessitating a tax audit, the due date is July 31st.

International Transactions (Form 3CEB): Required for LLPs involved in international transactions, with a deadline of November 30th.

Income Tax Return (ITR - 5): Filing is due by July 31st (or September 30th for tax-audited LLPs), presenting income, expense, and tax liability details.

LLP Annual Filing Compliance Calendar (for your reference):

Form-8 (Statement of Accounts): Due by 30th October, filed with the Registrar of Companies.

Form-11 (Annual Returns): Due by 30th May, filed with the Registrar of Companies.

ITR - 5 (Income Tax Return): Due by 31st July (or 30th September with mandatory tax audit), filed with the Income Tax Department.

Audit (Tax Audit, if applicable): Due by 30th September, filed with the Income Tax Department.

Adhering to these requirements is critical for LLPs to meet their legal obligations, uphold their good standing, and prevent financial penalties.