LLP Income Tax in 2026: Tax Rate, Partner Remuneration, AMT and How It Compares with a Company

A limited liability partnership gives its partners the limited liability of a company with the light compliance of a partnership, and for income tax it is treated almost exactly like a partnership firm. This guide explains how an LLP is taxed in 2026 under the Income-tax Act, 2025: the tax rate, surcharge and cess, alternate minimum tax, how much the LLP can pay its partners, how partners are taxed, and how the total tax compares with running the same business as a private limited company. It is written for founders, professionals and family businesses deciding on or running an LLP.

Quick answer

An LLP pays income tax at a flat 30% on its taxable income, plus a 12% (income above ₹1 crore) surcharge above ₹1 crore and 4% cess. It cannot use the 22% company rate or the new-regime slabs. Profit shared with partners is not taxed again, and remuneration to working partners is deductible within the section 35(e) limits.

• Effective rate: 31.2% up to ₹1 crore, about 34.94% above it

• Alternate minimum tax: 18.5% of adjusted total income, only if profit-linked deductions are claimed

• Partner remuneration: on the first ₹6 lakh of book profit (or a loss): ₹3 lakh or 90% of book profit, whichever is higher; 60% of the balance of the rest

• No presumptive taxation (old 44AD/44ADA) for LLPs

• File ITR-5 by 31 August (no audit) or 31 October (audited)

How an LLP is treated under the Income-tax Act, 2025

Under the Limited Liability Partnership Act, 2008, an LLP is a body corporate with its own legal identity, separate from its partners. The Income-tax Act does not treat it as a company. Instead, the definitions of "firm", "partner" and "partnership" in section 2 of the Income-tax Act, 2025 expressly include a limited liability partnership and its partners. So, for tax, an LLP is a firm: it is taxed at the firm rate, its payments to partners are governed by the same section 35(e) limits, and its partners enjoy the same exemption on their share of profit.

The new Act applies to income earned from 1 April 2026, which it calls tax year 2026-27. For profit earned up to 31 March 2026, an LLP still files under the Income-tax Act, 1961 for assessment year 2026-27. Almost nothing about LLP taxation changed in substance with the new law. What changed is the numbering: old section 40(b) is now section 35(e), old section 10(2A) is the Schedule III exemption, old section 115JC (alternate minimum tax) is now section 206(2), and old section 167C (partners' liability for unpaid tax) is now section 331.

LLPs do have a few features that ordinary firms do not. An LLP cannot use the presumptive scheme for businesses and professions. Its accounts must be audited under the LLP rules once it crosses a size limit, which brings an earlier tax return due date. And because an LLP can have a company as a partner, the rules on who counts as a "working partner" matter more than they do in a family firm.

LLP tax rate, surcharge and cess for 2026

The rate for firms, including LLPs, is fixed each year in the Finance Act. For tax year 2026-27, the Finance Act, 2026 sets it at 30% on the whole of the total income. There is no basic exemption limit, no slab structure and no rebate, so a small LLP with ₹4 lakh of taxable profit pays tax on all ₹4 lakh, while a proprietor with the same profit under the default new regime would pay nothing.

A surcharge of 12% (income above ₹1 crore) applies once total income crosses ₹1 crore, with marginal relief so that the extra tax just above ₹1 crore never exceeds the extra income. Health and education cess at 4% is charged on tax plus surcharge. These rates are unchanged from FY 2025-26.

LLP tax on different profit levels (tax year 2026-27)

Taxable income	Tax at 30%	Surcharge	Cess 4%	Total tax	Effective rate
₹10,00,000	₹3,00,000	Nil	₹12,000	₹3,12,000	31.2%
₹50,00,000	₹15,00,000	Nil	₹60,000	₹15,60,000	31.2%
₹2,00,00,000	₹60,00,000	₹7,20,000	₹2,68,800	₹69,88,800	34.94%

₹10,00,000

Tax at 30%

₹3,00,000

Surcharge

Nil

Cess 4%

₹12,000

Total tax

₹3,12,000

Effective rate

31.2%

₹50,00,000

Tax at 30%

₹15,00,000

Surcharge

Nil

Cess 4%

₹60,000

Total tax

₹15,60,000

Effective rate

31.2%

₹2,00,00,000

Tax at 30%

₹60,00,000

Surcharge

₹7,20,000

Cess 4%

₹2,68,800

Total tax

₹69,88,800

Effective rate

34.94%

LLPs cannot opt for the 22% rate in section 200 of the new Act. That concessional rate, and the 15% rate for new manufacturing companies in section 201, are reserved for domestic companies. Nor can an LLP use the section 202 slabs, which apply to individuals, Hindu undivided families, associations of persons, bodies of individuals and artificial juridical persons. If you are comparing structures, see our guide to company tax rates in India for the full list of corporate regimes.

Alternate minimum tax on LLPs

Companies pay minimum alternate tax on book profit; LLPs and other non-corporate taxpayers have their own version called alternate minimum tax. Under section 206(2), if an LLP's regular income tax is less than 18.5% of adjusted total income of its "adjusted total income", it must pay that minimum instead.

Adjusted total income is the total income increased by two kinds of deduction: any profit-linked deduction claimed under Chapter VIII-C (other than section 149), and the capital-expenditure deduction under section 46 (old section 35AD), as reduced by the normal depreciation that would otherwise have been allowed on those assets. AMT applies only if the LLP has claimed one of these deductions. An LLP running a consultancy, a trading business or a factory with no such incentive claims will never pay AMT.

The Finance Act, 2026 cut the minimum alternate tax for companies to 14% and made it a final tax for old-regime companies, but it did not touch the 18.5% AMT rate for LLPs. Where AMT applies, the effective rate including cess is 19.24% up to ₹1 crore of adjusted total income.

Paying partners: remuneration and interest limits

An LLP reduces its taxable profit mainly by paying its partners. Section 35(e) of the new Act sets the same three tests for LLPs as for partnership firms. Remuneration (salary, bonus, commission or any other payment for services) is deductible only if it is paid to a working partner, only if the LLP agreement authorises it for that period, and only up to a limit based on book profit.

A working partner must be an individual who is actively engaged in conducting the affairs of the business. Every LLP must have at least two designated partners who are individuals, and they are usually the working partners. A company or another LLP that is a partner is not an individual, so remuneration to it is not deductible, although it can receive interest on its capital and its share of profit. Investor partners who do not work in the business also cannot be paid deductible remuneration.

Interest on partners' capital and loans is deductible up to 12% simple interest a year, if the LLP agreement provides the rate. Interest can be paid to any partner, including a corporate or investor partner. The agreement cannot authorise payments retrospectively: a supplementary agreement signed in January that authorises remuneration from April gives no deduction for April to December.

Worked example: a three-partner consulting LLP

A design consultancy LLP has three designated partners, all working in the business. For tax year 2026-27, its profit after all expenses and after 12% interest on partners' capital, but before partner remuneration, is ₹40,00,000. That is its book profit, assuming no other tax adjustments.

The remuneration limit is the higher of ₹3,00,000 or 90% of the first ₹6,00,000 (₹5,40,000), plus 60% of the remaining ₹34,00,000 (₹20,40,000), which totals ₹25,80,000. The LLP agreement authorises "remuneration equal to the maximum allowable under the Income-tax Act, shared equally", so each partner is credited ₹8,60,000. The LLP's taxable income falls to ₹14,20,000, and its tax is ₹4,26,000 plus cess of ₹17,040, a total of ₹4,43,040. Without the remuneration, the LLP would have paid ₹12,48,000 on ₹40 lakh.

Consulting LLP — tax year 2026-27

₹40,00,000

Book profit

₹25,80,000

Deductible partner remuneration

section 35(e) limit

₹4,43,040

LLP's tax with remuneration

on ₹14,20,000

₹12,48,000

LLP's tax without it

on ₹40,00,000

Each partner now reports ₹8,60,000 of remuneration plus his interest on capital as business income. Under the default new regime, a partner with ₹10 lakh of total income pays no tax after the rebate in section 156, so in this example the partners' personal tax is low or nil. The share of the remaining after-tax profit is exempt in their hands.

How LLP partners are taxed

Remuneration and interest received by a partner from the LLP are taxed in the partner's hands as business income under section 26(2)(g), but only to the extent the LLP was allowed to deduct them. They are not salary: section 15(4) says so expressly, so there is no standard deduction, and the partner files ITR-3. The partner can deduct expenses incurred to earn this income, such as interest on a personal loan taken to contribute capital.

The partner's share of profit is exempt under Schedule III (Table: Sl. No. 2) of the new Act, which replaces section 10(2A). This is the core tax advantage of an LLP over a company. A company pays tax on its profit and the shareholder then pays tax again on dividends at his slab rate. An LLP pays tax once, and the partner receives the after-tax profit free of further tax, whether it is withdrawn or left in the capital account.

Since 1 April 2025, the LLP must deduct TDS on remuneration, salary, commission, bonus and interest paid or credited to partners: 10% once payments to a partner exceed ₹20,000 in a year. The rule moved from section 194T of the old Act to section 393(3) of the new Act. Remember that a year-end credit to the partner's capital account counts as a credit for TDS. Partners usually need to pay advance tax on top, since the 10% TDS rarely covers their full liability. Our TDS calculator works out the deduction on each partner's credit.

LLP or private limited company: which pays less tax?

The answer depends on how much profit the business makes, whether the owners need to take it out, and their personal tax rates. The comparison below assumes ₹50,00,000 of profit before any payment to the owners, two owners who both work full-time, and that all after-tax profit is paid out.

On these numbers the company pays about ₹1.1 lakh less tax at the entity level, but the dividends of ₹13.6 lakh are taxed again in the shareholders' hands. If each shareholder's other income already puts him near the top slab, that second layer can cost more than the company saved. If the owners leave the profit in the business to fund growth and pay no dividends for several years, the company's lower entity rate wins. Directors' salary is also taxed as salary with a standard deduction, while LLP remuneration is business income without one.

Non-tax factors usually decide the matter. An LLP has lighter statutory compliance, no minimum alternate tax, no dividend tax and simpler profit withdrawal. A company can raise equity from investors, issue employee stock options and is often preferred by banks and large customers. Startups planning to raise venture capital almost always choose a private limited company. Our guides to LLP registration and private limited company registration cover the set-up side.

Presumptive taxation, audit and returns

LLPs are shut out of the main presumptive schemes. Section 58 of the new Act defines the "eligible assessee" for the business scheme (old 44AD) and the "specified assessee" for the professional scheme (old 44ADA) to include resident individuals, Hindu undivided families and partnership firms, but specifically not limited liability partnerships. So an LLP must keep full books and compute its actual profit, however small its turnover. The goods-carriage scheme (old 44AE) is open to any assessee, so an LLP owning ten or fewer goods vehicles can declare income per vehicle under it.

Two audits can apply. Under the LLP rules, an LLP must have its accounts audited if its turnover exceeds ₹40 lakh or its partners' contribution exceeds ₹25 lakh in a year. Under section 63 of the Income-tax Act, a tax audit is needed if business turnover exceeds ₹1 crore (₹10 crore where cash receipts and payments are each within 5%), or professional receipts exceed ₹50 lakh. Because the presumptive scheme is not available, a professional LLP crosses the tax audit line at a much lower turnover than a firm on the 50% scheme would.

An LLP's tax and filing calendar for tax year 2026-27

15 Jun, 15 Sep, 15 Dec 2026 and 15 Mar 2027

Advance tax instalments

31 Mar 2027

Credit partner remuneration and interest; deduct TDS

30 May 2027

Form 11 (annual return) with the Registrar

31 August 2027

ITR-5 due if no audit is required

31 October 2027

ITR-5 due if accounts are audited under the LLP Act or the Income-tax Act

30 October 2027

Form 8 (statement of account and solvency) with the Registrar

The due date question trips up many LLPs. From tax year 2026-27, the Income-tax Act gives 31 October to any assessee whose accounts must be audited "under this Act or under any other law". An LLP whose accounts are audited under the LLP rules therefore gets the later date even if it does not need a tax audit. An LLP below both audit limits must file by 31 August, a month later than the old 31 July. Registrar filings under the LLP Act are separate and covered in our guide on LLP annual filing.

Converting a company into an LLP

Small private companies sometimes convert into LLPs to escape dividend tax and minimum alternate tax. The transfer of assets on conversion is not treated as a taxable transfer if every condition in section 70(1)(ze) of the new Act is met. All the company's assets and liabilities must pass to the LLP; all shareholders must become partners in the same proportion as their shareholding; they must receive nothing beyond their capital contribution and profit share; their combined profit share must stay at 50% or more for five years; no part of the company's accumulated profit can be paid to partners for three years; and in each of the three preceding years the company's turnover must not have exceeded ₹60 lakh and its total assets ₹5 crore.

Conditions for a tax-neutral company-to-LLP conversion (section 70(1)(ze))

0/7

• All assets and liabilities of the company pass to the LLP
• All shareholders become partners, in the same ratio as their shareholding
• No consideration to shareholders other than capital contribution and profit share
• Former shareholders keep at least 50% of profit share for five years
• Turnover not above ₹60 lakh in any of the three preceding tax years
• Total assets not above ₹5 crore in any of the three preceding tax years
• No payout of the company's accumulated profit to partners for three years

Share Print

Breaking any condition later makes the exempted gains taxable in the LLP's hands in the year of the breach. Any minimum alternate tax credit the company had built up does not pass to the LLP; the new section 206(3)(d) and (4)(d), inserted by the Finance Act, 2026, say so expressly. Unabsorbed losses and depreciation of the company can be carried forward by the LLP if the conversion conditions are met.

Partners' liability for the LLP's unpaid tax

Limited liability has a tax exception. Under section 331 of the new Act, if tax, interest, penalty or any other sum due from an LLP for a year cannot be recovered from the LLP, every person who was a partner at any time during that year is jointly and severally liable to pay it. A partner can escape only by proving that the non-recovery is not due to any gross neglect, misfeasance or breach of duty on his part. Investor partners and designated partners alike should keep an eye on the LLP's tax position and get a clear handover when they exit.

Common mistakes LLPs make

The most frequent errors are paying remuneration to a corporate partner or an investor partner who does not work in the business, signing the remuneration clause after the period it covers, and using accounting profit instead of book profit as computed for tax. Others are assuming the LLP can declare 8% of turnover under the presumptive scheme, and missing the TDS on year-end partner credits. Due dates cause the last group of errors: an LLP below both audit limits that waits until 31 October files late, which attracts a late fee and interest and costs it the right to carry forward that year's business loss.

Official links

• Income Tax e-filing portalFile ITR-5 and pay advance tax
• New Income-tax Act FAQsHow the 2025 Act replaces the 1961 Act
• Finance Act, 2026 (Gazette)Firm and LLP tax rate and surcharge
• Limited Liability Partnership Act, 2008Designated partners, conversion and audit
• MCA services portalForm 8 and Form 11 filings

What to do next

Check that your LLP agreement names the working partners, authorises remuneration by a clear formula and states the interest rate on capital, and that it is dated before the period it covers. Estimate this year's book profit, work out the remuneration limit, and set up TDS for the year-end credit. If you are still choosing a structure, run your own numbers through the LLP-versus-company table above and read our guides on partnership firm income tax and depreciation rates, since depreciation directly reduces the book profit used for partner remuneration.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the income tax rate for an LLP in 2026?

An LLP is taxed like a partnership firm: a flat 30% on its whole taxable income, with no basic exemption limit. A surcharge of 12% (income above ₹1 crore) applies when income exceeds ₹1 crore, and 4% health and education cess is added. The effective rate is 31.2% up to ₹1 crore and about 34.94% above it.

Can an LLP opt for the 22% tax rate?

No. The 22% concessional rate in section 200 of the Income-tax Act, 2025 (old section 115BAA) is only for domestic companies. LLPs cannot use it, nor the new-regime slabs in section 202, which cover individuals, HUFs, AOPs and BOIs. An LLP always pays the flat firm rate.

Is LLP profit taxed again when partners withdraw it?

No. A partner's share of the LLP's profit, as per the profit-sharing ratio in the LLP agreement, is exempt in the partner's hands under Schedule III (Table: Sl. No. 2) of the Income-tax Act, 2025. Unlike company dividends, there is no second layer of tax on distributing profit, which is the main tax advantage of an LLP.

What is alternate minimum tax for LLPs?

Under section 206(2) of the Income-tax Act, 2025, an LLP that claims profit-linked deductions under Chapter VIII-C (other than section 149) or the capital-expenditure deduction in section 46 must pay at least 18.5% of adjusted total income. If regular tax is lower, it pays AMT instead. LLPs that claim none of these deductions are not affected.

Can an LLP use presumptive taxation under 44AD?

No. The presumptive schemes for business and professions, now in section 58 of the Income-tax Act, 2025 (old 44AD and 44ADA), are open to resident individuals, HUFs and partnership firms but expressly exclude limited liability partnerships. An LLP can use only the goods-carriage scheme (old 44AE) if it owns ten or fewer goods vehicles.

Which ITR form does an LLP file and by when?

An LLP files ITR-5. If its accounts must be audited under the Income-tax Act or the LLP Act, the due date is 31 October; otherwise it is 31 August from tax year 2026-27. An LLP must get its accounts audited under the LLP rules if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh.

How much remuneration can an LLP pay its partners?

The same limit as a partnership firm under section 35(e): on the first ₹6 lakh of book profit (or a loss): ₹3 lakh or 90% of book profit, whichever is higher, plus 60% of the balance of the balance of book profit, paid only to working partners who are individuals and only if the LLP agreement authorises it. Interest on capital is deductible up to 12% simple interest a year.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Finance Act, 2026 (No. 4 of 2026), First Schedule Part I-B Paragraphs C, E and F — Ministry of Law and Justice (Legislative Department) · accessed 9 October 2026
2. 2.Income-tax Act, 2025 (Act 30 of 2025) — sections 2 (firm, partner, partnership), 35(e), 58, 70(1)(ze), 200, 202, 206, 331 and Schedule III — Ministry of Law and Justice (Gazette of India, reproduced by TaxHeal) · accessed 9 October 2026
3. 3.Finance Bill 2026 — Memorandum explaining provisions (direct taxes) — Ministry of Finance (India Budget) · accessed 9 October 2026
4. 4.Objective and scope of the new Act (Income-tax Act, 2025) — FAQs — Income Tax Department (e-filing portal) · accessed 9 October 2026
5. 5.Limited Liability Partnership Act, 2008 — India Code (Legislative Department) · accessed 9 October 2026
6. 6.Startup tax structuring in India: holding company or LLP — Treelife · accessed 9 October 2026
7. 7.EY consolidated tax and policy alert — Union Budget 2026 — EY India · accessed 9 October 2026