Quick Mail

Please enter your name

Please type your message

Your captcha code looks wrong

Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

Home Articles Taxation         Share :

Budget 2016Chapter H

Chapter H. Conversion of Company into LLP:

18. Additional conditions for availing tax exemption for conversion of a company into a LLP: [S. 47 (xiiib) (ea)]

To encourage conversion of companies in to LLPs, the Income-tax Act provides for an exemption from capital gains earned on such conversion. Businessmen would also like to convert a company into LLP to save on Dividend Distribution Tax. (Profits distributed by a company is liable to DDT @ 15% plus surcharge and education cess. Distribution by an LLP to its partners is not liable to any tax.) Apart from this, the Companies Act 2013 is very stringent. To come out of the rigors of Companies Act 2013, businessmen prefer an LLP.

One of the conditions presently applicable is that the total sales turnover or gross receipts in any of the 3 preceding years should not exceed Rs. 60 lakhs. The relief is for smaller companies.

Consider a case of private company holding huge reserves. It can stop its business, reduce its turnover and then convert itself into an LLP. Then it can distribute profits. There will be no tax. If it had distributed its profits while it was a company, it would have paid DDT.

Now an additional condition has been proposed. It states that this exemption will be available to companies which have total assets of upto Rs. 5 crores at the end of all three previous years preceding the one in which conversion takes place.

The Government wants to give this benefit (of converting Company into LLP) only to small companies.