Help with formation of LLP or Partnership firm

Hello there!

We are 3 members planning to form a business. Please guide how shall we begin? Registering with LLP or Partnership firm? Initially starting with 10 Lakhs.

Big question is, let’s say, profits earned around 9 lakhs per annul. How Income tax levied ? 30% on total profits earned through company.

Or 9 lakhs divided to 3 partners which is 3 lakhs on each partner? How tax division works?

@Anar_Desai, can you take a look into this.

Hey @shashidhar_redd ,

There are some basic differences between LLP and Partnership Firm. LLP has separate legal entity whereas a partnership firm has no separate legal status apart from his partners. The LLP is required to maintain and audit books of accounts if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively under the LLP Act. You may read more about it here.

Further, Income Tax at a flat rate of 30% is levied on Partnership Firms and LLP’s. The share of the partners in the total income of the firm is exempt in the hands of the partners. Losses of the firm are carried forward and not allowed to be allocated to the partners.

So, if 9 lakhs are earned, then the entity will pay the tax and then the amount will be distributed among partners.

LLPs cannot claim benefit of 44AD by using presumptive taxation. Partnership Firms can claim this benefit.

Hope it helps.