Budget brings Mukesh Ambani's holding companies under tax net

Just last year, Ambani had rejigged his 35% stake in RIL by transferring his shares to 27 limited liability partnerships.

| Mar 01, 2011, 06.27 PM IST

MUMBAI: The promoter companies owned by Mukesh Ambani – holding Reliance Industries stake worth Rs 110,000 crore -- have been bought under the tax net with the finance ministry proposing a 18.5 per cent alternate minimum tax (AMT) on limited liability partnerships.

Just last year, Ambani had rejigged his 35% stake in Reliance Industries by transferring his shares to 27 limited liability partnerships. The tax has been imposed from April 1, 2012 onwards and it will apply for the assessment year 2012-13 onwards. The new tax has been specifically introduced for LLPs to plug the revenue leakage under the income-tax act.

As of now, an LLP, being treated as firm for taxation, has many tax advantages over a company under the income-tax act. Take for example, it is not subject to minimum alternate tax, and is not subject to dividend distribution tax . Besides, it is not subject to surcharge.

With the budget, all the LLPs will now pay 18.5% tax though the LLPs will continue to enjoy tax breaks like not paying the dividend distribution tax. Apart from Ambani, the Piramals have also transferred their stake to LLPs. The government has already registered 4,000 LLPs in the country as many companies -- especially infrastructure projects -- were taking advantage of the tax exemptions for the LLPs.

The explanatory memorandum of budget 2011 is proposes to charge alternate minimum tax at the rate of 18.5% on a partnership’s adjusted total income. Experts say while the minimum alternate tax is applicable for companies across all sectors, the alternate minimum tax is imposed specifically to target the LLPs.

Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.