Query in LLP Taxation

[S SHANMUGASUNDARAM]

Query in LLP Taxation

Facts

1. A profitable Private Ltd Company with only 2 shareholders and 2 Directors
2. Its Reserves is Rs.300 Lakhs
3. It is owning a Immovable property more than 3 years old
4. Book Value of said immovable property is Rs.20Lakhs and Market Value is Rs.100 Lakhs
5. Its annual Turn over is 200 lakhs and profit after tax is Rs.35Lakhs
6. It wants to convert into LLP under the provisions of LLP Act.
7. No secured Loan

QUERY

1. Tax liability for Private Ltd for the conversion
2. Tax liability for Individual shareholders for the conversion
3. tax Liability when the above said Rs.300 lakhs reserves credited to Partners a/c upon conversion
4. tax Liability when the above said Rs.300 lakhs reserves drawn by Partners any time  after  conversion
5. Tax on the PAT of Rs.35Lakhs credited to partners a/c every year after conversion

AI Summary

LLP conversion tax neutrality under section 47(xiiib) hinges on strict asset, shareholder and distribution continuity conditions.
Conversion of a private company into an LLP will not attract capital gains if conditions of section 47(xiiib) are met: all assets and liabilities transfer to the LLP; all shareholders become partners with equivalent capital and profit shares; shareholders receive no consideration except partnership interest and profit share; the aggregate profit share of those shareholders remains at least fifty percent for the prescribed period; the company's prior turnover is within the statutory threshold; and no distribution is made out of accumulated profits to partners during the restraint period. Breach results in taxability of the successor LLP for the sheltered gains.