LLPs to face AMT even without deductions: What’s changing?
The new Income Tax Bill proposes applying Alternative Minimum Tax (AMT) on LLPs, even if they don’t claim any deductions. Currently, many promoter-led LLPs or family office structures pay only 12.5% tax on profits, but that could soon change to 18.5%.
This move may level the tax field with companies, but it also hits investor-friendly LLP setups — especially those holding equity stakes, startup shares, or managing pooled investments.
Why was AMT introduced in the first place?
AMT ensures that entities claiming large deductions still pay a minimum tax on their book profits. Similar to MAT (Minimum Alternate Tax) for companies, AMT applies to non-corporate taxpayers like LLPs, individuals, HUFs, and others under Section 115JC of the Income Tax Act.
Until now:
- AMT applied only when LLPs claimed Section 10AA or Chapter VI-A deductions (like 80-IA to 80RRB).
- If no such deductions were claimed, AMT didn’t apply.
Proposed change:
- All LLPs, even if they don’t claim any deductions, will be subject to AMT at 18.5% + surcharge + cess.
Key Impact: Higher Tax on Investment LLPs
Startups and HNIs often use LLPs as holding entities or family investment vehicles. Why? Because:
- LLPs have no dividend distribution tax.
- No MAT if no deductions were claimed.
- Simple compliance.
But under the proposed regime:
- A promoter LLP holding equity in a startup may now pay 18.5% AMT, even if it earns passive capital gains or dividend income.
- Earlier, it would pay just 12.5% normal tax (30% slab with 50% profit share eligibility and 25% rebate).
Net effect: Around 6% more tax outgo — narrowing the arbitrage between LLPs and companies.
Comparison Table: LLP Tax Now vs Proposed
| Particulars | Current Regime | Proposed Regime |
|---|---|---|
| AMT applicability | Only if deductions claimed | On all LLPs, regardless of deductions |
| AMT Rate | 18.5% + surcharge + cess | 18.5% + surcharge + cess |
| Effective tax if no AMT | ~12.5% (with slab benefits) | ~18.5% (flat AMT) |
| Holding co. advantage | Yes | Reduced |
Legal Reference
- Section 115JC to 115JF – Provisions related to AMT in the Income-tax Act, 1961.
- Budget documents suggest amendments to expand AMT applicability to all LLPs, irrespective of deduction claims.
CBDT may notify the final wording via Finance Act, 2025 and a clarificatory circular.
Who will be affected most?
- Startup promoters using LLPs as holding structures
- Family offices pooling capital in LLPs
- Angel investors routing funds via LLPs
- LLPs earning capital gains or dividends but claiming no deductions
Expert Tip: Time to Evaluate LLP vs Company Structures
If you’re setting up a new investment entity or holding structure, consider this:
✔️ Private Ltd Company may now offer better long-term visibility (esp. post-AMT)
✔️ LLPs will still offer flexibility, but tax benefit gap is closing fast
Speak to a CA before restructuring.
FAQ: AMT on LLPs
Q1. Will AMT apply to professional LLPs like CA or law firms?
A: Yes, if they are structured as LLPs, AMT will apply—even if no deductions are claimed.
Q2. Is there any AMT threshold or exemption limit?
A: Yes. AMT does not apply if adjusted total income is below ₹20 lakhs under Section 115JEE(2).
Q3. Does AMT apply to traditional partnership firms?
A: No. AMT under Section 115JC applies to LLPs only, not to registered partnerships.
Summary
New Income Tax Bill proposes AMT on all LLPs, even those without deductions. Investment LLPs may face 18.5% tax instead of 12.5%, reducing tax advantage over companies.
Final Words
The proposed AMT rule changes the game for LLPs. Investors, promoters, and startups using LLPs as tax-efficient vehicles must now recalculate the benefits.