Impact of Budget-2017 on Companies & LLP/Partnership Firms
- Budget 2017 has given companies an advantage over partnership and Limited
Liability Partnership in terms of Income Tax
- The maximum marginal tax rates including surcharge will be lesser in
Companies in comparison to LLP/Partnership Firm after Budget-2017.
- As per the new budget 2017, the corporate tax on companies has been reduced
from 30% to 25% though the tax on LLP/Partnership remains same i.e. 30%.
Applicable Tax Rate on Companies & LLP/Partnership Firms
Advantages Of Companies Apart From Taxation Point Of View
Restriction on payment of Salary and Interest to Partner when compared to
- Limit Partners to draw salary, remuneration and interest from partnership/LLP whereas there are no Limit on payment of
Salary/Remuneration to Directors.
- The formula is given in Income Tax under Section 40(b) which defines maximum amount which can be given to partners and
claimed as expenses for partnership firm and LLP.
- Following are the Limits:-
Dividend Distribution Tax
Dividend distribution tax is the tax levied by the Indian Government on
companies according to the dividend paid to a company’s investors. At
present the dividend distribution tax is 15%. However many closely
held companies instead of declaring dividend they pay Salary and
remuneration to directors to avoid paying DDT.
Formation and Other cost
The cost for formation of Company is bit higher than compared to partnership and
LLP. However it is one time cost and can be adjusted against the tax benefit it
receives over LLP and partnership.
- ✓ Company has Limited Liability when compared to partnership Firm
- ✓ Better Corporate Governance
- ✓ Easy Succession Planning and expansion
- ✓ Separate Legal Entity as compared to Partnership Firm
Conversion OF LLP into Private Limited Company
Before filing application for conversion, please ensure the followings:
- That secured creditors have given their consent for such conversion;
- A notice in newspaper about such conversion, one in English and in vernacular language seeking objections must be
- There are minimum seven or more members in the existing LLP for converting the LLP into a Company.
- A general meeting must be held where majority of partners have given their consent for such conversion.
Procedure to be followed for Conversion:
- Apply for DIN in DIR-3- In case members ought to be directors;
- Apply for Name approval in form INC-1-The name once approved by the authority is valid for 60 days;
- File eform URC-1- for conversion;
- File eForm INC 7- For declaration of compliance;
- File eForm INC 22- For registered office address; and
- File eform DIR 12- For appointment of Directors