Conversion of Private Limited company into LLP
MANU K
SURENDER HARSH
1. Capital Gains Tax on Conversion
The conversion from a private limited company to an LLP is exempt from capital gains tax only if specific conditions under Section 47(xiiib) of the Income Tax Act, 1961, are fulfilled. These conditions include:
- Turnover Threshold: The total sales, turnover, or gross receipts of the company in any of the last three financial years should not exceed ₹60 lakh.
- All Shareholders Become Partners: All the shareholders of the company must become partners of the LLP, and their profit-sharing ratio must remain the same as their shareholding in the company.
- No Payment Other Than Capital Contribution: No amount other than the capital contribution of the shareholders and the transfer of accumulated profits should be paid to the partners.
- Assets and Liabilities Transfer: All the assets and liabilities of the company should become the assets and liabilities of the LLP.
- No Further Business/Asset Transfer for 5 Years: The LLP cannot transfer any asset acquired from the company within five years of conversion.
- Company's Accumulated Profit: The accumulated profit of the company (reserves and surplus) is not distributed to the partners during or after the conversion.
If these conditions are not met, the conversion may attract capital gains tax on the transfer of assets.
2. Land and Property Ownership
When converting to an LLP:
- Registration of Land in LLP's Name:
- The ownership of land and properties held by the company is transferred to the LLP as part of the conversion process.
- Re-registration of Properties: While the property is automatically transferred to the LLP, the title transfer (mutation) must be updated in the name of the LLP in land records. This typically requires:
- Payment of applicable stamp duty (which varies by state).
- Submission of supporting documents like the conversion approval, LLP agreement, and the incorporation certificate of the LLP.
- Some states may allow exemptions or concessional stamp duty rates for conversions, but this depends on local laws.
Steps to Ensure Compliance
Check Eligibility for Tax Exemption:
- Ensure that all conditions under Section 47(xiiib) are met to avoid capital gains tax.
Property Re-registration:
- Verify the stamp duty and registration requirements for land in your state.
- Complete the property mutation process after conversion.
File Required Documents with Authorities:
- Update land records with the local revenue authority in the name of the LLP.
- Update ROC filings to reflect the conversion.
Would you like detailed guidance on the procedural aspects or need assistance with compliance for this conversion?
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MANU K
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