Khurshid unhappy with tax regime for LLP firms

Written by Neha Pal | New Delhi | Updated: Jul 18 2009, 06:30am hrs
The corporate affairs ministry is not enthused with the tax structure unveiled by the finance ministry in Budget 2009-10 for limited liability partnership (LLP) firms and feels that the response of firms by way converting to it would, thus not be overwhelming.

The tax rate is not very apt as we were expecting a special tax rate or fully tax-transparent LLP like in other countries, officials said.

When asked whether the finance ministry consulted the corporate affairs ministry before fixing the tax slab, corporate affairs minister Salman Khurshid said, The finance ministry did not consult us before fixing the rate of tax for LLP, which is 30.9%. We will have to wait for a year and see the response towards LLP.

An LLP firm will have to pay a tax of 30.9%, which would include the basic tax as well as the education cess. For the conversion of partnerships to LLP, the new entity will have no tax implications if assets and liability of partners remain the same after conversion.The profit of LLP will be taxed at firm level and the profit distributed to the partners will be tax free.

However, LLP firms would be spared of the 10% surcharge and hence their tax liability would be lower than that of companies, which pay a 33.99% tax on profits in addition to dividend distribution tax.

The official said that the corporate affairs ministry had designed LLP model keeping in mind the small & medium enterprises. Before the taxation aspect of LLP came in, the ministry had been getting hundreds of enquiries regarding LLP every week. Anurag Goel, secretary of MCA, had said, In the next couple of years, I see lakhs of LLPs coming in.

The official further said that earlier there was a wait and watch policy, but now since the tax structure of LLP is out, the response will not be very encouraging. In terms of the corporate tax also, there has not been any change, said the official.