LLP Agreement and Tax Planning

LLP Agreement and Tax Planning

As per the Income Tax law, an LLP is considered to be a 'firm'; therefore, tax provisions applicable to a firm are also applied to LLPs, provided the following criteria are satisfied:

  1. The relation of partners is evidenced by an instrument; and
  2. The individual shares of partners are specified in the instrument.

Therefore, to avail the benefits of a firm under the Income Tax act, the LLP agreement must be an instrument in writing and each partner's partnership interest identified and specified in the LLP agreement. Other considerations to avail tax benefits while drafting LLP agreements are:

  • Interest on capital contribution can be availed as a deduction from LLP income within the overall limit if such provision is provided in the agreement.
  • Working partners and the remuneration payable to each working partner should be specified in the LLP agreement. A partner can draw salary from the LLP if his name is indicated in the agreement as working partner. Hence, one must look into these aspects while preparing an LLP agreement to minimize tax liability among the partners including LLP tax.
LLP agreement by Companiesinn

CompaneisInn has considered all these facts while developing the LLP agreements. You can choose a suitable one for your requirements.