Limited Liability Partnerships (LLP) in India: The Complete 2025 Guide
Last Updated: December 2025 | By M S Sulthan Legal Associates
The Limited Liability Partnership (LLP) remains one of the most popular business structures in India for professionals and small businesses. Combining the flexibility of a partnership with the liability protection of a company, it offers the best of both worlds. However, with the introduction of concepts like "Small LLP" and updated residency rules, staying compliant is crucial.
This guide answers the most pressing questions about LLPs, updated with the latest Ministry of Corporate Affairs (MCA) notifications and Income Tax laws for Financial Year 2025-26.
2025 Legal Updates
- Residency Rule Relaxed: A Designated Partner now needs to stay in India for only 120 days (previously 182 days) in the financial year.
- Small LLP Benefits: LLPs with contribution up to ₹25 Lakhs and turnover up to ₹40 Lakhs face significantly lower penalties for non-compliance.
- Strict Penalties: For non-Small LLPs, the late filing fee remains ₹100 per day without a maximum cap for certain forms.
Part 1: Formation & Partners
1. Must one partner be an Indian citizen?
Not necessarily a citizen, but a resident. At least one "Designated Partner" must be a "Resident of India." As per the latest amendment, this means a person who has stayed in India for at least 120 days during the financial year.
2. What is a "Designated Partner" (DP)?
Designated Partners are legally equivalent to Directors in a company. They hold the responsibility for all legal compliances, filings, and statutory obligations. Regular partners are owners who may or may not participate in day-to-day management.
3. Is there a minimum capital requirement?
No. You can incorporate an LLP with a capital contribution as low as ₹1. This makes it highly cost-effective for startups.
4. Can an LLP have foreign partners?
Yes. Foreign nationals or foreign companies can be partners in an Indian LLP. This is allowed under the Automatic Route for sectors where 100% FDI is permitted, subject to FEMA/RBI guidelines.
5. Can a minor be a partner?
No. Unlike a traditional partnership where a minor can be admitted to the "benefits" of the firm, an LLP cannot have a minor as a partner.
Part 2: Taxation & Finance
6. What is the Income Tax rate for an LLP in 2025?
LLPs are taxed at a flat rate of 30% on total income.
Additions:
Additions:
- Surcharge: 12% if total income exceeds ₹1 Crore.
- Cess: 4% Health & Education Cess on Tax + Surcharge.
7. Is the profit share received by partners taxable?
No. The share of profit received by a partner from the LLP is exempt from tax in the hands of the partner under Section 10(2A) of the Income Tax Act, as the LLP has already paid tax on it.
8. Can partners take a salary? Is it tax-deductible?
Yes, working partners can take a salary (remuneration), provided it is authorized by the LLP Agreement.
- For the LLP: It is a tax-deductible expense (within limits of Section 40(b)).
- For the Partner: It is taxable as "Business Income."
9. When is a Statutory Audit mandatory?
You save on audit fees if you are small. Audit by a Chartered Accountant is mandatory ONLY if:
- Turnover exceeds ₹40 Lakhs, OR
- Capital Contribution exceeds ₹25 Lakhs.
Part 3: Compliance & Legal Status
10. Can I convert my Private Limited Company to an LLP?
Yes. This is a common strategy for small companies to avoid Dividend Distribution Tax and reduce compliance. However, capital gains tax may apply if specific conditions (like turnover limits) are not met during conversion.
11. Can we add a new partner without changing the Agreement?
No. Every entry or exit constitutes a change in the constitution of the LLP. You must execute a Supplementary LLP Agreement and file Form 3 and Form 4 with the ROC within 30 days.
12. Can an LLP own assets like a car or patent?
Yes. An LLP is a separate legal entity. It can hold assets (cars, land) and intellectual property (patents, trademarks) in its own name. Depreciation on these assets can be claimed by the LLP.
13. Is a retiring partner safe from future liabilities?
Not automatically. Under GST and Income Tax laws, partners can be held jointly and severally liable for dues of the firm. A retiring partner must strictly file retirement intimations with the ROC and the GST department to limit future liability.
14. What are the penalties for late filing?
This is the most critical risk. Late filing of annual forms (Form 8 and Form 11) attracts a penalty of ₹100 per day. There is no maximum cap for this in general cases, meaning penalties can run into lakhs if ignored for years.
Conclusion
While an LLP offers operational ease, the "Limited Liability" shield does not protect against non-compliance penalties. With the government's move towards stricter digital enforcement and data mapping between GST and MCA, timely filing is more critical in 2025 than ever before.
