All About LLP

All About LLP (Limited Liability Partnership Firms)

here you will find all about LLP (Limited Liability Partnership), it is a corporate entity formed under the Limited Liability Partnership Act, 2008 and one of its important characteristics is that its partners have limited liability (unlike partnership firms registered under the Indian Partnership Act, 1932). Though a partnership, an LLP has perpetual succession and separate legal existence from its members. Thus, an LLP is a corporate structure that combines benefits of both, a company and a partnership firm. As the compliance cost for a LLP is much lower than other forms of business and because of its greater flexibility, LLP can be a good option for foreign entities to start business in India. This form of business is best suited to service industry, as well as small and medium scale enterprises.

Salient Features Limited Liability Partnership (LLP)
minimum number of partners 2 Designated partners. . At least one of designated partners must be resident in India
Compliance Requirements Annual Return Filing in-form 11. No Board Meetings
Conversion Cannot be converted into a Company
Statutory Audit IF turnover is more than 40 lakhs or contribution is more than 25 lakhs
Tax Audit If turnover is more than 1crore
Closure/dissolution Can be initiated voluntarily, • By the Partners, or • By the Order of the Tribunal

For foreign investors:

Compliances under FEMA, 1999: It should be noted that foreign investment is permitted in an LLP only if the LLP is engaged in activities where (a) 100% foreign equity ownership is permitted under automatic route and (b) there are no performance conditions prescribed under the FDI  Policy. For example, an LLP engaged in construction development or industrial parks will  not be eligible to receive foreign direct investment (FDI) since there are “FDI-linked performance conditions” for the sector even though 100% FDI under automatic route is permitted in the sector.

Therefore, an intending foreign investor must go through all the conditions subject to which a LLP can be formed in India.

Steps for incorporation:

 Approving Authority: Registrar of Companies (RoC) and Reserve Bank of India (RBI)

  1. Obtaining DSC (Digital Signature Certificate) of proposed partners from any licensed Certifying Authority.
  2. Obtaining and Registering DIN (Director Identification Number)/ DPIN (Designated Partner Identification Number) of proposed partners: It is mandatory for proposed partners to obtain DIN/ DPIN under the Companies Act, 2013. DIN/ DPIN can be applied electronically in Form DIR-3 on the website of Ministry of Corporate Affairs (MCA), along with required documents and filing fee. As per General Circular No. 44/2011, the Ministry, vide notification dated 5th July, 2011, had integrated the Director’s Identification Number (DIN) with Designated Partnership Identification Number (DPIN)

III. Applying for availability of name: The fore most step in formation of an LLP is to apply for availability of name in Form 1 which has to be filed with MCA for reservation of name of the proposed LLP along with Details of business activity and Proposed monetary value of partner’s contribution.

  1. Filing of incorporation documents: Once the name of proposed LLP has been approved, incorporation documents, which include subscriber’s statement including consent, details of partners, Registrar’s reference number for name approval, Proof of address of registered office of LLP etc. are required to be filed in e Form 2.
  2. Drafting and execution of LLP agreement: LLP Agreement is one of the most crucial documents as it governs the rights and duties of partners. It may be drafted as per the convenience and mutual understanding among partners of LLP. Various aspects covered under the agreement may include amount and manner of contribution, rights and duties of partners, description of business of proposed LLP, etc.
  3. Drafting & Filing of LLP agreement: LLP is formed once the Form 2 is approved by the Ministry. LLP agreement governs the rules regulating the actions of the members of the LLP setting out the powers of the LLP. Various aspects covered under the agreement may include amount and manner of contribution, rights and duties of partners, description of business of proposed. It should be then filed within 30 days of incorporation of LLP in Form 3.

Post incorporation compliances (immediately after incorporation)

Foreign Exchange Management Act (FEMA), 1999

  1. Obtaining FIRC (Foreign Inward Remittance Certificate): As soon as the amount of consideration from foreign investor is received in India, authorised dealer bank will issue FIRC
  2. Reporting to the Reserve Bank of India (RBI): LLP is then required to report to RBI (through its authorised dealer) in Form FOREIGN DIRECT INVESTMENT-LLP(I), along with other documents, within 30 days of the receipt of amount of consideration.

Quick Easy Approach For Foreign Companies And Citizens

Often a foreign company / citizen or Non-Resident Indian wishes to start operations in India very quickly. Delays in getting digital signature and DIN lead to the company incorporation process getting delayed. During such times, it may be a good option to follow the following steps:

  • Two Indian resident-citizens (A and B) who already have PAN and DIN incorporate an

Indian company with the name, objects and authorized capital as required by the promoter based abroad.

  • A and B are the initial directors of the new Indian company.
  • As and when the foreign promoter has completed all the formalities related to DIN etc., A and B transfer all shares held by them in the new company to the foreign promoter.
  • After transfer of shares, new directors are appointed. Immediately thereafter, both A and B resign as directors.
  • In case it is so required, either A or B can continue as a Director to comply with the requirements of resident director.

Either A or B or both can continue to hold one share each of Rs. 10 as long as so required by the foreign promoter.


Practical Guide to Consolidation of Accounts

Did you know?

– Before Companies Act 2013, only listed company was required to do Consolidation. AS 21 says that if a company is required to do consolidation then consolidation is required to be done as per criteria set up in AS 21. hence here is the practical guide to Consolidation of Accounts.

– Earlier only listed companies was required to do consolidation as listing agreement required the same but with companies act 2013, sec 129 has defines financial statement to include CFS.

Consolidation requirement under Companies Act, 2013 (‘Act, 2013’)

Section 129 (3) read with Rule 6 of the Companies (Accounts) Rules, 2014 (Rules) provides manner of consolidation of financial statements of subsidiaries pursuant to Schedule III of the Act, 2013 and the applicable Accounting Standards.

As per AS 21, Consolidated Financial Statement (CFS) is required to be prepared only for a‘group’ of enterprises under the control of a parent.

As per the scope of AS-23 and AS-27 the application of equity method/proportionate method for consolidation of accounts of associate/ joint ventures respectively is required only when a company prepares consolidation under AS 21

The term ‘group’ has been defined in AS 21 as follows:

‘A group is a parent and all its subsidiaries.

The explanation to Section 129 (3) clearly states that for the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture

Therefore, as per Section 129 of the Act, 2013 read with rules thereof, consolidation of financial statement is required in case a company is having subsidiary or associate or joint-venture company.

There is another view which believes that CFS is not required if there is no subsidiary as Sec 129 requires consolidation to be done as per AS 21, but as per our view the applicability of CFS is governed by Sec 129 and not AS 21, AS 21 only prescribes the method once CFS is required to be done under any statute.

In this regard, MCA had come with notification no. G.S.R 723 (E) dated October 14, 2014and introduced the Companies (Accounts) Amendment Rules, 2014. As per the rule the consolidation requirement was exempted for a company not having subsidiaries but having associates or joint ventures (‘JVs’). However, the said exemption was only for the financial year 2014-15. Accordingly, such companies come within the purview of consolidation from FY 15-16 onwards.

AS 21 : Consolidation of Accounts

Definition – Scope

  • Preparation and presentation of Consolidated Financial Statements for a group of enterprises under the control of a parent.
  • Accounting for investment in subsidiaries in the separate financial statement of a parent.

Definition of Control

When one entity

Directly or indirectly through subsidiary, owns more than 50% of the voting power. OR

Has power to control the composition of Board of Directors of another company for economic benefits.

Minority Interest

– It is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent.

– In other words, it is that portion of results and net assets which are not owned by the Holding Company

Consolidation Procedure: Minority Interest Computation

Minority interests in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent; and

Minority interests in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parent’s shareholders.

Suppose company B is having Net worth of Rs 10 lac, company A purchases 75% of share of company B, then remaining 25% i.e. Rs 2.5 lacs becomes minority interest.

Presentation as per Schedule III
The CFS prepared in the same format as that of Separate Financial Statements, i.e, Schedule III of Companies Act 2013

Exclusion of Subsidiaries from Consolidation
The Holding Company shall consolidate the financial statements of all the subsidiaries, domestic or foreign other than:

Temporary Investment – When the shares are held in subsidiary company for disposal in near future.

Severe Restriction -Where there are long term restrictions on fund transfer from subsidiary to parent Company

Different financial year of Subsidiary
It will prepare an additional set of financial statement in accordance with financial year of holding

Consolidation Procedure: Goodwill Computation

At the date of acquisition

Any excess of the cost to the parent of its investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements

Cost to parent > Parent’s portion of Equity = Goodwill

When the cost to the parent of its investment in a subsidiary is less than the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, the difference should be treated as a capital reserve in the consolidated financial statements

Cost to parent < Parent’s portion of Equity = Capital Reserve

Consolidation Procedure: BS & P&L Consolidation
All assets, liabilities, income and expenses should be consolidated on line by line basis.

Line by line basis – combine assets, liabilities, income and expenses

Intra-group transactions and balances

  • Profits and losses on transactions between group members should be eliminated
  • Profits which are reflected in the value of assets to be included in the consolidation should be eliminated

Uniformity of accounting policies

  • Uniform accounting policies should be used for all entities included in the consolidation for like transactions and other events in similar circumstances
  • If there is mid-year acquisition then the mid-year financial statement as on date of acquisition is required for partial consolidation after acquisition.

Sale of Subsidiary

  • Consolidation process to be followed till the date parent subsidiary relationship ceases to exist
  • Recognition of difference between sale proceeds and Equity on the date of disposal in the consolidated profit and loss account and Capital Reserve / Goodwill to be reversed


  • List of all subsidiaries including name, country of incorporation, proportion of ownership interest and, if different, the proportion of voting power held
  • Under the Companies Act, 2013: – To comply with Instructions given for preparation of balance sheet and statement of profit and loss in Schedule III –
  • Entity-wise “amount of net-assets” and % of the same w.r.t. consolidated net assets –
  • Entity-wise “amount of share in profit & loss and % of the same w.r.t. consolidated profit & loss –
  • The above details to be further bifurcated into parent, subsidiary, joint –venture and also into Indian and Foreign
  • Effect of acquisition and disposal of subsidiaries on the financial position at the reporting date, the results for the reporting period and on the corresponding amounts for the preceding period
  • Names of the subsidiaries of which the reporting dates are different from that of the parent and the difference in reporting dates
  • Nature of relationship between parent and subsidiary, if parent does not own one-half of the voting power

AS-23 – Accounting for Investment of Associates in CFS

Significant influence may be exercised in several ways:

  • Representation on the Board of directors
  • Participation in policy making process
  • Material intercompany transactions
  • Interchange of managerial personnel
  • Share ownership – 20 %  or more

Consolidation method- Equity method

  • Under the Equity Method – investment is initially recorded at cost, identifying any goodwill / capital reserve arising at the time of acquisition and
  • the carrying amount is increased or decreased to recognise the investor’s share of the profits or losses of the investee after the date of acquisition
  • Elimination of unrealised profit / loss to the extent of investor’s interest Exclusion from CFS / Cessation.

Adjustments of carrying amount

Adjustments to the carrying amount of investment in an associate arising from changes in the associate’s equity that have not been included in the statement of profit or loss should be directly adjusted in the carrying amount of investment without routing it through the consolidated statement of profit and loss. The corresponding debit /credit should be made in the relevant head of the equity interest in the consolidated balance sheet

AS-27 – Financial Reporting of Interests in Joint Ventures

  • A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other enterprises, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.
  • A jointly controlled entity maintains its own accounting records and prepares and presents financial statements in the same way as other enterprises in conformity with the requirements applicable to that jointly controlled entity.
  • Joint control is the contractually agreed sharing of control over an economic activity
  • Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it.
  • Accounting of partnership firm/AOP in separate and consolidated financial statements
  • Proportionate Consolidation is a method of accounting and reporting whereby a venturer’s share of each of the assets, liabilities, income and expenses of a jointly controlled entity is reported as separate line items in the venturer’s financial statements.

Refund of SAD

Refund of SAD

The intention of levying Special Additional Duty (‘SAD’) of Customs also known as Counter Value Duty (‘CVD’) U/s 3(5) of the Custom Tariff Act is to encourage domestic market and counter balance local sales tax/ Value Added Tax (‘VAT’) leviable on like products at the time of sale , which would have been levied if procured from domestic market.

However, where the imported goods are subsequently resold, exemption from 4% additional duty is provided in the form of refund vide Custom Notification No. 102/2007 dated 14.09.07, provided the conditions prescribed in the said notification is fulfilled.

The following conditions are required to be fulfilled:

1) all the applicable duties including additional duty has been paid at the time of import by importer;

2) at the time of issuing invoice, importer shall specifically indicate in invoice that no credit of additional duty shall be admissible;

3) the importer shall file refund claim of the said additional duty of customs paid on the imported goods with the jurisdictional customs officer;

4) the importer shall pay appropriate sales tax or VAT on sale of the said goods;

5) the importer shall, inter alia, provide copies of the following documents along with the refund claim:

(i) document evidencing payment of the said additional duty;

(ii) invoices of sale of the imported goods in respect of which refund of the said additional   duty is claimed;

(iii) documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.

Procedure and clarification for claiming refund has been given in Circular No. 06/2008 Cus dated 28.04.2008 and Circular No. 16/2008 dated 13.10.2008 read with Notification No. 102/2007 Cus dated 14.09.2007.

Check list for filing refund application

S.No Particulars
1. Refund Application
2. Calculation/ Working sheet
3. Original Bill of Entry
4. Original TR-6 Challan
5. Copy of Import invoice/ packing list
6. Original Sales Invoices with declaration mentioning that no additional duty has been passed on
7. True copy of VAT/ CST challan and return
8. Authority letter
9. Ledger Account

Points to be cautious:

  1. Time limit for filing refund claim is one year from the date of payment of the additional duty of Customs. In view of the above, importer should be specific in filing refund claim within the stipulated time else the refund amount would lapse.
  2. Amount of SAD refund shall be restricted proportionate to sales made (quantity wise) and appropriate sales tax or VAT has been paid. Hence unsold stock would not be eligible for refund.
  3. The importer can file monthly claim irrespective of number of bill of entries. Single claim against a particular bill of entry is allowed and whereas refund claim for part quantity is not allowed except where necessary at the end of one year.
  4. One of the condition,inter-alia,requires that invoice should contain a declaration that no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible. In the absence of which, department rejecting the claim cannot be ruled out.
  5. Certificate from a statutory auditor / CA who certifies the final accounts, correlating VAT paymentvis-a-vis4% SAD amount and unjust enrichment. A certificate from any independent Chartered Accountant would not be acceptable.

Highlights of India-Mauritius DTAA amendment



  1. On 10thMay 2016, the Government of India has issued a press releaseannouncing the Protocol for amendment of the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains between India and Mauritius (DTAA). This protocol was signed by both the countries on 10th May 2016 at Port Louis, Mauritius. This amendment follows on Finance Minister Arun Jaitely’s announcement in the budget for 2016-14 to implement General Anti Avoidance Rules (GAAR) from April 1, 2017.


A brief Glimpse of Amendment in DTAA with  Mauritius is as follows:

Q1. What was the reason to amend tax treaty (DTAA) with Mauritius?

  • Any Capital Gains arising in Mauritius were not taxed
  • This made an attractive “post box address” for foreign investors to route investments into India
  • Indians with a intention of avoiding taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through “round tripping”.


Q2. When was the amendment made?

10th May 2016


Q3. What is the essences of the amendment?

Taxing a transaction “based on the source” rather than “based on residence” (Part of BEPS initiative)


Q4. What are the major amendments • Taxing of capital gains (CG) arising to a Mauritian resident from sale of share of a company resident in India.

  • If Such shares are acquired on or after 1stApril 2017
  • Shares acquired upto 31stMarch 2017, are ‘grandfathered’ meaning, any sale of such shares in future are tax-protected i.e. not taxed and its effect is prospective.
  • Taxed at 50% of reduced tax rate on CG arising between 01/4/2017 and 31/03/2019 on investment made on or after 1stApril 2017, subject to Limitation of Benefits (LoB)
  • LoB mentions the Mauritian companies have to spend expenditure of more than INR 27 Lakhs in preceding 12 months, if not spend then CG taxed at full rate.
  • LoB applies till 31stMarch 2019, thereon CG is taxed at full rate



Q5. What are the impacts of amendment?

  • Surge in investments in India until 31stMarch 2017, to take advantage of ‘grandfathering’ window.
  • The window period will give sufficient time to investors to plan their investment structures.


Q6. What are the limitations of amendment?

  • Applicable only to ‘shares’ of a company in India. Does not apply to other financial instruments (FI)such as debentures, derivatives, Interest in LLP etc., these FI can go without taxing.
  • No clarity on issue of shares by Indian company after April 2017, in pursuant to transactions such as right issues, bonus issue etc.
  • No clarity on impact of amendment on India-Singapore treaty, since tax on CG under the two treaties are co-terminus

CBEC allows sale of excise duty-free goods manufactured in India through Duty-free shops at airports

IN a major shift in its Customs Policy, the Government today notified a new policy allowing excise duty-free sale of goods manufactured in India to international passengers or members of crew arriving from abroad at the Duty Free Shops (DFSs) located in the arrival halls of international airports and to passengers going out of India at the DFSs located in the departure halls of international airports in the country. Directions have also been issued to specify the procedure for removal of the goods from the factory of production without payment of duty to go downs or retail outlets of DFSs and related matters.


Passengers or members of crew coming from aboard are entitled to a duty-free baggage allowance subject to the conditions specified in the Baggage Rules, 1998. DFSs located in the arrival halls sell duty-free imported goods. Indigenous goods are also being sold in the arrival halls, but they are not duty free. Passengers going out of India are permitted to purchase duty-free imported goods from DFSs located in the departure halls of international airports. However, excise duty-free indigenous goods are not available for sale in such DFSs. It is in this context that representations were received requesting to permit excise duty-free sale of goods manufactured in India both on the arrival side as well as the departure side so as to ensure parity with the imported goods and to promote brand INDIA.

The Government held discussions with the different stake-holders and decided to permit excise duty-free sale of indigenous goods to passengers or members of crew arriving from abroad within the overall permissible baggage allowance under the Baggage Rules, 1998 and to permit excise duty-free sale of indigenous goods to passengers going abroad. Now, a passenger arriving from abroad shall have the choice to buy either duty-free imported goods or duty-free indigenous goods within his overall permissible baggage allowance.