10 Income Tax Saving Tips for LLP
Limited Liability Partnership (LLP) income tax saving is legal exercise carried out by LLP to meet Income Tax saving object in correct systematic and orderly manner. As LLP Partner you may be having question on How to Save Tax in LLP ? What is tax planning tips for LLP ? Can LLP Save taxes ? Income tax saving for LLP means claim all allowable expenses from LLP. Its not about having intention to deceit the legal spirit behind the law. Tax planning should not be done with an intent to defraud the Government. Where LLP maintain correct books of account with proper invoices , timely accounting its helps them to get correct net profit of LLP. In This article we discussing about income tax saving tips for LLP.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
Income Tax Rate on LLP
Income Tax rate on Limited Liability Partnership firm applicable at 30%. LLP status is different than its partners. Income tax rate for Limited Liability Partnership firm and normal partnership firm is same.
| S.No | Income Tax | Tax Rate | Financial Year |
|---|---|---|---|
| 1. | Income Tax | 30% | FY 2019-20 |
| 2. | Surcharge if total income exceeds Rs. 1 crore | 12% | FY 2019-20 |
| 3. | Health and Education cess | 4% | FY 2019-20 |
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
1# Remuneration to Partners
In LLP business is carried out by the partners. Partners are the decision makers in firm they also work for execution. Partners work in LLP as employee of LLP and in turn they expect salary. The term Remuneration includes salary , bonus , commission. However to pay remuneration there are certain criteria hence LLP need to plan partners remuneration. The remuneration paid to partners is expense for firm.
- The remuneration is allowable expenditure in firm is it is paid to working partner
- Partnership deed must have clause about remuneration. Most of partnership deed as term of remuneration allowed as per Income Tax Act Section 40(b)
- Remuneration should be as per updated firm deed
- Remuneration not allowed if tax is paid as per 44ADA presumptive basis
- Remuneration above 40(b) shall be added back in partnership firm
| Book Profit (Rs) | Maximum Deductible Amount (Rs) |
| Loss | 150,000 |
| Up to 3 Lakh | 90% of Book Profit or Rs 150,000; whichever is more |
| More than 3 Lakh | 60% of Book Profit |
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
2# Interest on Capital
Partners invest money for LLP business operations. Sometimes the capital contribution is in monetary and non-monetary terms. In return of this investment partners expect interest. Partnership firm deed need to clause about rate of interest to avoid further ambiguity. Under income Tax Act maximum allowable deduction for interest paid to partners is 12%. Amount exceed 12% is disallowed in income tax calculation of firm. By making interest on capital to firm profit get reduced.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
3# Depreciation on Assets
To run business operation LLP may be purchasing capital goods such as Machine , Laptop, Printer, Mobile phone etc. These fixed assets as categorized as capital assets in Balance sheet of LLP. Means the purchase item will appear in asset side of LLP and not in Profit & Loss statement. LLP will be using these assets over period of time. Income Tax Act 1961 given depreciation rate for claiming deprecation. If asset is put to use for 180 days or more in the year of purchase, then full depreciation Otherwise half depreciation If asset purchased and used on last day of the year,still half depreciation. Claiming depreciation is one of Income Tax Saving Tip for LLP.
Example : ABC LLP Purchases Machine of Rs. 1000,000/ in May 2018 where as depreciation rate is 15 % then , company can claim Rs. 15000/- as depreciation in books of account.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
4# Pre Incorporation Expenses
Pre incorporation expenses are expenses incurred by partners of LLP before registration of LLP. As these expense are incurred before LLP Registration , these are incurred by partners on behalf of LLP. Post incorporation of LLP , firm should book these expense in books of account of LLP and claim these as pre incorporation expense over period as per accounting standards.
Examples
- Preliminary consultation charges on formation of LLP
- Training to Employees
- Project report
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
5# Pay Advance Tax
For profit earned Income Tax Act demands for income tax. However Income Tax demand these tax in advance. As name suggest its tax paid in advance. Failure to advance tax as per due date demands for interest. To avoid further interest cost on late payment of taxes, LLP should pay advance tax. Below is due dates to pay advance tax
| Due date of installment | Amount payable |
| On or before 15th June | Not less than 15% of the advance tax liability |
| On or before 15th September | Not less than 45% of the advance tax liability |
| On or before 15th December | Not less than 75% of the advance tax liability |
| On or before 15th March | 100% of the advance tax liability |
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
6# Salary to Family Members
Some of business are family owned and managed by families in India. Where few of family members take active part in LLP operation such as sales , marketing , Administration etc. like an external employee. Due to family owned business , making payment to family member who is working as employees get ignored. Where LLP is having family member as an employee in such situation LLP can think of making payment to that member as like an employee of firm. This results in actual net profit of LLP. Family member need to file Income Tax return as individual and pay applicable taxes.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
7# Traveling Expenses
LLP is operated by its partners , who take active participation in LLP business operation. In some cases partners make expenses from personal pocket for LLP’s operation such as traveling expenses, petrol expenses for delivery of good, meeting new client etc. As this is expenditure is required for LLP business , it should be recorded in LLP books of account and payment need to make form LLP bank account.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
8# Meeting Expenses
Partners take active participation to run LLP business. Some time partners meet new prospect client , existing client in restaurants for meeting etc. As these are meeting expense incurred for LLP business hence it should get recorded in LLP books of account and pay of these should be done form LLP current account.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
9# File ITR within Due date
Partners are have rights and duties in LLP. Apart from taking profit share in LLP , partners are responsible for filing income tax return of LLP. By filling income tax return in due time firm follows government rules and regulation. Below are benefits of filing of LLP Income Tax return in time.
- Saving Non filing penalty upto Rs. 10000/-
- ITR filing within due date can be revised later
- Carry forward of Losses allowed if ITR filing within due date
- Bank Loan preference LLP filing ITR in Due date
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
10# 80 G Donation
Along with business objective there is social responsibility is there for business. LLP Which want to contribute for social welfare can make donation to charitable organizations which are government approved. Donation given of 80 G registered organization helps to meet social object and amount given can be claimed as donation under Income Tax 80 G provision.
[divider height=”30″ style=”default” line=”default” themecolor=”1″]
