The compliance of the return filing in an LLP is to be maintained or else it can lead to heavy penalties. The compliance burden on LLPs is lighter as compared to private limited companies on an annual basis. But the amount, though is substantial for private limited companies (INR 1 lakh) or LLPs (INR 5 lakh) and re-iterates the need for collaboration between shareholders and directors to ensure compliance. 

A limited liability partnership (LLP) is a registered business in which elements of the company are intermixed with those of the partnership. LLP partners do not have personal liability, other than for the amount he or she invests, for any debts incurred or actions or omissions of partners, therefore the registration of LLP protects the partners from personal liability. The limited liability partnership act was passed in 2008 to regulate the workings of the LLP. 

Since LLP has minimum compliance with this Act, it also has certain mandatory obligations that differ in focus compared to their obligations under LLP. 

Benefits Of LLP Compliance 

• Protection of Personal Assets: After registration of the LLP's, compliance aids in its recognition by the law as an independent entity, thereby safeguarding the partners' personal assets. 
  
  
• Credibility: Compliance enhances the credibility of the organization, thus appealing to customers, investors, and partners. 
  
  
•  Tax Benefits: The LLP tax filing provides tax benefits, in particular lower tax rates compared with other business entities. 
• Subject to various worldwide governments and regulations, limited liability grants a partner the right to limit its liabilities only to its capital contribution, reducing the downside financial risk to this partner. 
  
  
•  Yearly/Quarterly Compliance: ensures that all the operations work correctly. 
  
  
•  Perpetual Succession: LLPs have perpetual succession, i.e., continuity of the business even if a partner leaves. 

Taxation Of LLPs In India: 

• Tax Rate: An LLP is taxed as an individual entity at a flat rate of 30% on its net taxable income. 
  
  
• Surcharge: 12% on the tax slab if the income exceeds ₹ 1 crore 
  
  
• Health and Education Cess: a 4% cess on the total tax payable (including surcharge). 
  
  
• Tax Benefits: LLP tax is charged on the profit generated after all costs including rent, salary, interest on loans, and other expenses. 
  
  
• Profit Distribution among Partners: The LLP's profits are not taxed at the LLP level; instead, the profits are taxed at the partner's personal income tax rate. 
• Salaries and Interest: The lesser amount of salary/interest paid to partners shall be taxed in the hands of the partners and shall be allowable as deduction to LLP. 
  
  
• DDT Not Applicable: While for companies it is mandatory to pay a dividend distribution tax when distributing profits, there are no such taxes for profit sharing in LLPs. 

LLP Tax Filing Documents Required 

•  LLP Agreement: The detailed agreement that describes rights and duties of partners and the profit-sharing ratio. 
  
  
• Certificate of Incorporation: Received from registrar of companies (RoC) once the registration of LLP is successful. 
  
  
• DIN (Director Identification Number) for Partner: All the partners must have the DIN number to register legally. 
  
  
• Tax-related Documents:

Long Form- PAN Card of the LLP: One of the essentials required to file tax returns and conduct financial transactions is a PAN card. 

GST Registration Certificate: Mandatory if LLP turnover exceeds the statutory limit of ₹20 lakhs (₹10 lakhs in case of North Eastern states). 

ITR (Income Tax Returns): Filed once every year declaring the LLP’s income along with deductions and tax liabilities. 

• Financial Records:

Audited Financial Statements: These comprise balance sheets, Profit & Loss Statements and Cash Flow Statements; audited by a certified auditor. 

Books of Accounts: A business is required to maintain books and have all financial transactions recorded. 

• Annual Filings:

Form 8 (Statement of Account and Solvency): It is a compliance filing to be filed with the RoC. 

Form 11 (Annual Return): This is a return of annual nature containing details of LLP and their partners and their interest, which is required to be filed with the RoC. 

• Other Legal Documents:

LLP Board Resolutions: Minutes of significant decisions made by LLP. 

Partners KYC documents, proof of ID (id proof which can be passport/driving license) and these address proof (of Aadhaar) of all the partners and recent photos of all partners are to be attached. 

Procedure For LLP Compliance 

Incorporation Compliance: 

• LLP Registration- The first step involves registering a LLP with the Ministry of Corporate Affairs (MCA). Once approved, you will receive a Certificate of Incorporation. 
  
  
• LLP Agreement- Partners shall have to sign a comprehensive LLP Agreement. It also describes the ratios in which the profits are to be shared, allocations of responsibilities, and operational rules of the LLP. 

Tax Registration: 

• PAN Card- Generate a PAN (Permanent Account Number) of LLP for the purpose of taxation. 
  
  
• GST Registration- In case the annual turnover of the LLP exceeds ₹20 lakhs (or ₹10 lakhs for north eastern states), the LLP needs to get itself registered under GST. 

Accounting and Audit: 

• Updating Books of Accounts- Ensure that you must maintain accounts books for transactions, receipts, and invoices in real-time. The books need to be maintained per the accounting standards prescribed by the government. 
  
  
• Audit- If the turnover crosses ₹40 lakhs, you are required to have a mandatory annual audit from a registered CA. 

Annual Filings: 

• Form 8 (Statement of account and solvency): This is an annual filing to be filed with the RoC at the end of every year must keep up to date the financial depiction. 
  
  
• Form 11 (Annual Return): Information regarding partner, shareholding and business operation shall be provided with RoC in this form. 

Income Tax Compliance: 

• ITR in every tax year The LLP need to file income, deductions and liabilities with income tax department and duly pay taxes. 
  
  
• Incorporation of LLP - Steps after Registration Failure to adhere to these steps will assist in the compliance of LLP post incorporation with the legal requirements & the consequence of incurring penalties in the event of a failure.