LLP Taxation: Rates, AMT, and Conversion

A note on the law: section numbers here are from the Income tax Act, 1961, the operative law for the current filing cycle. The Income tax Act, 2025 renumbers these provisions from returns filed for Tax Year 2026-27 onward.

The basics

• Flat 30% tax rate on total income, plus applicable surcharge and 4% cess, same as a partnership firm
• No Section 87A rebate, no slab benefit
• Section 40(b) partner remuneration and interest rules apply identically to LLPs, already covered in How Partnership Firms Are Taxed, the definition of “firm” for that section includes LLPs

Alternate Minimum Tax: the LLP-specific twist

AMT under Section 115JC applies to an LLP only if it has claimed one of a specific set of deductions:

• Chapter VI-A deductions under the “Part C” heading, the profit-linked incentive deductions (80-IA, 80-IB, 80-IC, 80-IE, and similar)
• Section 35AD, capital expenditure deduction for specified businesses
• Section 10AA, SEZ unit profit exemption

An LLP that hasn’t claimed any of these never encounters AMT, regardless of turnover or profit.

Where it does apply: AMT is charged at 18.5% of adjusted total income (regular taxable income with those specified deductions added back), plus surcharge and cess. The LLP pays whichever is higher, its regular tax or the AMT figure.

The gotcha worth stating clearly: individuals, HUFs, AOPs, and BOIs get a 20 lakh rupee adjusted-total-income floor below which AMT doesn’t apply at all. That floor exemption does not extend to LLPs or partnership firms. An LLP claiming a qualifying deduction is inside AMT’s scope regardless of how small its income is.

Excess AMT paid over regular tax becomes AMT credit, carried forward 15 years and set off in a later year when regular tax exceeds AMT. A chartered accountant’s report in Form 29C is mandatory wherever AMT applies.

Converting a company into an LLP, tax-neutral if every condition holds

Section 47(xiiib) keeps a company-to-LLP conversion out of capital gains entirely, no tax on the company’s asset transfer, none on the shareholders’ shares becoming partnership interests, but only if all of the following hold at once:

• Total turnover, sales, or gross receipts in any of the three years preceding conversion: 60 lakh rupees or less
• Total value of assets per the company’s books: 5 crore rupees or less
• Every shareholder becomes a partner, capital contribution and profit share matching their prior shareholding
• Partners’ aggregate profit-sharing ratio stays at least 50% of that shareholding for 5 years
• No accumulated pre-conversion profits distributed to partners for 3 years
• No consideration to shareholders beyond capital contribution and profit share

Miss any one of these, even years after the conversion, and the exemption is withdrawn retrospectively: the original gain becomes taxable in the year the condition breaks. A profit distribution within the 3-year window is a double hit, it can trigger deemed dividend taxation on top of unwinding the exemption.