{"id":13698,"date":"2020-07-26T12:00:51","date_gmt":"2020-07-26T06:30:51","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=13698"},"modified":"2020-07-27T10:26:44","modified_gmt":"2020-07-27T04:56:44","slug":"limited-liability-companies-are-taxed-in-india","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/limited-liability-companies-are-taxed-in-india\/","title":{"rendered":"Know how Limited Liability Companies are taxed in India!"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The corporate fraternity in India is yet to get accustomed to LLC&#8217;s working protocol and its taxation traits. There is a common misconception that LLC taxation traits are similar to private limited companies or a partnership firm. After the amendment of the Finance Act 2009, it has been clarified that LLC would be taxed like a partnership firm. In this article, you will come across several aspects of Taxation for <a href=\"https:\/\/corpbiz.io\/llp-registration\"><strong>Limited Liability Company<\/strong><\/a>.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"655\" height=\"451\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-126.png\" alt=\"Limited Liability Companies are taxed in India\" class=\"wp-image-13699\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-126.png 655w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-126-300x207.png 300w\" sizes=\"(max-width: 655px) 100vw, 655px\" \/><\/figure><\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/limited-liability-companies-are-taxed-in-india\/#Understanding_of_Taxation_Norms_Comparision\" >Understanding of Taxation Norms: Comparision<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/limited-liability-companies-are-taxed-in-india\/#Provision_of_Taxation_for_Limited_Liability_Company\" >Provision of Taxation for Limited Liability Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/limited-liability-companies-are-taxed-in-india\/#What_is_a_surcharge\" >What is a surcharge?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/limited-liability-companies-are-taxed-in-india\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_of_Taxation_Norms_Comparision\"><\/span>Understanding of Taxation Norms: Comparision<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To get a better understanding of the LLC&#8217;s taxation norms, let us go through the private limited companies&#8217; taxation policy. The income generated in a private limited company is taxed at a rate of 30%. The law has assigned the Private Limited Company as a separate legal entity. Apart from filing income tax, the <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>private limited company<\/strong><\/a> is also accountable to pay the surcharge of 5% whenever their taxable income surpasses the minimum threshold limit i.e., Rs. 1 crore. Such companies need to address the secondary and higher education cess of 1% as well. Private limited company lures the following taxation charges.<\/p>\n\n\n\n<ul><li><strong>Education and Higher Education Cess<\/strong>: Private limited company attracts secondary education cess at the rate of 2% and higher education cess @ 1%. <\/li><li><strong>Turnover exceeds one crore:<\/strong> Surcharge of 5% will be applicable when the company generates more than Rs. 1 cr of taxable income. <\/li><li><strong>In case of dividends declaration:<\/strong>&nbsp; A dividend tax @ 15% is applicable whenever the Private ltd company declares the dividend. A surcharge of 10% is also relevant in this case. <\/li><\/ul>\n\n\n\n<div class=\"shadow1\"><strong>Note:<\/strong> The dividend obtained by the shareholders is exempted under Income Tax provisions.<\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Taxation for Limited Liability Company<\/h3>\n\n\n\n<p>The LLP taxation norms are more or less identical to that of a\npartnership firm. Since partnership firms deem as a separate taxable entity,\nthey need to bear the income tax @ 30% + education cess @ 2% + secondary and\nhigher education cess @ 1%. A private limited company also follows these norms.\n<\/p>\n\n\n\n<p>A partner can claim interest on capital and a deduction for remuneration rendered by them to the LLP. If LLP has no provision mentioned in the agreement in this context, then the partner cannot avail of these components. The LLP Agreement should clearly illustrate the clause that supports these claims. The payment regarding remuneration cannot be granted to the LLP Partner, who is not actively involved with the company&#8217;s affairs. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/process-of-llp-name-change-india\/\">Detailed Process of LLP Name Change in India<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What are the criteria for deducting the remuneration of an LLP partner? <\/h3>\n\n\n\n<p>LLC can make remuneration payments to its partner on the basis of the LLP agreement. Moreover, the Remuneration to Partners cannot exceed the prescribed limit mentioned under the <strong><em>income tax act, 1962<\/em><\/strong><sup><a href=\"https:\/\/www.icicibank.com\/knowledge-base\/tax\/components-of-income-tax-law.page#:~:text=The%20Income%20Tax%20Act%2C%201961,and%20recovery%20of%20Income%20Tax.&amp;text=These%20rules%20are%20referred%20as%20Income%20Tax%20Rules%2C%201962.\"><strong><em>[1]<\/em><\/strong><\/a><\/sup>. The following table would help you understand the provision for remuneration in LLC. <\/p>\n\n\n\n<table class=\"table table-bordered\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\" width=\"69\">\n<p><strong>S.no<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"346\">\n<p><strong>Conditions<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"209\">\n<p><strong>Remuneration<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" width=\"69\">\n<p>1.<\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"346\">\n<p>On the first three lacs of book profit or loss<\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"209\">\n<p>Rs 1.5 lacs or 90%, whichever is higher<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" width=\"69\">\n<p>2.<\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"346\">\n<p>On balance<\/p>\n<\/td>\n<td style=\"text-align: center;\" width=\"209\">\n<p>@60%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<p><strong>Example:<\/strong> The book profit of an LLC comes out to be Rs, 12,00,000. Here&#8217;s how\nyou can calculate the amount of remuneration of the partner in this case. <\/p>\n\n\n\n<p>As per the first condition- on the first three lacs, the remuneration will be 90% of the same i.e., Rs 2,70,000. Now the balance amount i.e. Rs, 9,00,000, will be deducted @ 60% which will eventually come out to be &#8211; Rs 5,40,000. Thus, the net remuneration that an LLP should pay to its partners is Rs. 8,10,000. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Provision_of_Taxation_for_Limited_Liability_Company\"><\/span>Provision of Taxation for Limited Liability Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The interest and remuneration obtained by the partner from an LLP deem as a taxable income of the LLP partner. Therefore, if the LLP partner allocates some expenditure concerning the company&#8217;s affairs, it can be set off against the receipt of remuneration and interest. The LLP doesn&#8217;t have to address <a href=\"https:\/\/corpbiz.io\/tds-return-filing\">TDS<\/a> provision on account of interest and remuneration necessarily. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Surcharges on the LLP income<\/h3>\n\n\n\n<p>In general, LLP lures surcharges, but only if the generated income\nexceeds the threshold limit i.e., Rs. 1 crore. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Income tax on LLPs <\/h3>\n\n\n\n<p>Typically, every LLPs operating in the country needs to <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\"><strong>file income tax return<\/strong><\/a> every year. The income tax return, in the case of LLC, seeks the signature of the active partners. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_a_surcharge\"><\/span>What is a surcharge? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As the name suggests, the surcharge refers to as an additional\ncharge or tax. A surcharge of 10% is levied on an individual earning more than\nRs 1 crore as a net taxable salary. However, some relaxation is also provided\nas oftentimes the increase in tax liability becomes more than the increase in\nincome above Rs 1 crore after factoring surcharge.<\/p>\n\n\n\n<p>The domestic corporations earning in the range of Rs 1 cr to Rs 10\ncr is liable to a surcharge of 5%. The moment this income surpasses the\nthreshold of 10 cr, the surcharge rate goes higher up to 10%. A surcharge of 2%\nis levied on a foreign corporation whose net income falls in the range of Rs 1\ncr to Rs 10 cr. as soon as the entity exceeds this income bandwagon, the\nsurcharge changes to 5%.&nbsp; An incremental\nrelaxation is furnished to both foreign and domestic corporations if the income\nsurpasses Rs 1 cr and Rs 10 cr.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>LLC in India operates as a separate legal entity that lures substantial tax on the income generated. LLC caters to a wide variety of taxes, starting from the surcharge to education cess. Unlike other business models, LLC discourages any provision for TDS on account of interest and remuneration. If you still need some assistance regarding Taxation for Limited Liability Company, then feel free to contact the <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz&#8217;s<\/strong><\/a> expert. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/modified-llp-settlement-scheme-2020\/\">Modified LLP Settlement Scheme, 2020<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The corporate fraternity in India is yet to get accustomed to LLC&#8217;s working protocol and its taxation traits. There is a common misconception that LLC taxation traits are similar to private limited companies or a partnership firm. After the amendment of the Finance Act 2009, it has been clarified that LLC would be taxed like [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":13700,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[155],"tags":[801],"acf":{"service_id":"3"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":14268,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13698"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=13698"}],"version-history":[{"count":4,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13698\/revisions"}],"predecessor-version":[{"id":13704,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13698\/revisions\/13704"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/13700"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=13698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=13698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=13698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}