MCA seeks tax clarity on LLP

NEW DELHI: Company affairs minister Prem Chand Gupta is set to seek a commitment from finance minister P Chidambaram on the most attractive feature of a limited liability partnership (LLP)— its taxation — before he seeks the Cabinet’s nod for a Bill allowing this new business entity.

The ministry of company affairs (MCA) wants an assurance that the finance ministry would propose amendments to the Income-Tax Act in the winter session specifying the tax policy for LLPs if MCA is to remove the tax structure it has proposed in the draft cabinet note on LLPs. The finance ministry had objected to MCA specifying the tax policy when the concept note on LLPs was released earlier, saying that it is the exclusive domain of the North Block. MCA hopes to table the LLP Bill in the winter session.

LLPs will facilitate any number of strangers with different resources to trust one another and start a business without being accountable for the other partners’ conduct. MCA wants to give the partners in an LLP the unique right to own assets and get taxed accordingly, which is not available to a company or to a general partnership.

As per the draft cabinet note, which is yet to be circulated to other ministries for comments, the profit making activities of an LLP and its assets would be treated as the activities and the assets of the partners and not as that of the LLP, and they will be taxed accordingly for capital gains.