Draft Income Tax Bill 2025 LLPs May Retain LTCG Benefits
India’s Draft Income Tax Bill 2025 proposes several structural updates. A key point for Limited Liability Partnerships (LLPs) is whether they will continue enjoying long-term capital gains (LTCG) tax treatment similar to companies. Here’s what you should know.
Background: Why LTCG Benefits Matter for LLPs
LLPs have been popular among startups and professional firms due to:
- Lower compliance than companies
- Pass-through taxation for partners
- Eligibility for capital gains tax benefits on sale of capital assets, similar to companies
Earlier drafts of the Direct Tax Code suggested removing this advantage. The current draft bill aims to maintain parity with companies for now.
What the Draft Income Tax Bill Says
Key highlights for LLPs under the 2025 draft bill:
- Section Reference: The draft keeps existing capital gains computation for LLPs under Chapter IV.
- No separate LTCG carve-out: LLPs to be taxed on capital gains similar to companies (per CBDT’s explanatory note).
- Transfer definitions: No major change in definitions under Section 2(47) impacting LLP asset transfers.
- Merger/Conversion Rules: Provisions under Section 47 for tax-neutral conversion or restructuring remain largely intact.
✅ Expert View: Many tax practitioners welcome this, as removing LTCG treatment could have made LLPs less attractive than private limited companies.
Practical Tip: Plan Transfers Carefully
While the draft retains benefits, ensure:
- Proper documentation of asset cost and holding period
- Valuation reports for intangible assets
- Compliance with transfer pricing if foreign partners are involved
- Review Section 47 clauses for tax-neutral reorganisations
Table: LLP vs Company LTCG Rules (Draft Bill 2025)
| Aspect | LLP | Private Company |
|---|---|---|
| LTCG Tax Rate | 20% with indexation benefit | 20% with indexation benefit |
| Eligible for exemptions | Yes, under Sections 54, 54EC | Yes, under Sections 54, 54EC |
| Tax on Merger/Conversion | Not taxable under Sec. 47 | Not taxable under Sec. 47 |
Source: CBDT Draft Income Tax Bill 2025 & Explanatory Notes
Possible Future Changes
While the draft supports LTCG benefits for now, final enactment may tweak details. Watch for:
- Notifications clarifying treatment for digital assets
- Rules on deemed transfer for indirect share transfers
- Updated thresholds for indexation benefits
Stay updated via Efiletax Blog or refer directly to the Income Tax India website.
FAQs on LLP LTCG Benefits under Draft Bill 2025
Q1. Will LLPs pay surcharge on LTCG?
Yes. Surcharge applies as per income slabs, similar to companies.
Q2. Can LLPs claim exemptions like Section 54F?
Yes. Draft retains existing exemptions for capital gains reinvestment.
Q3. What about startup ESOPs under LLPs?
Draft doesn’t specify ESOP treatment for LLPs. Seek professional advice.
Conclusion
The Draft Income Tax Bill 2025 provides relief by not scrapping LTCG benefits for LLPs — ensuring a level playing field with companies. LLPs should:
✅ Track final notifications
✅ Maintain clear records
✅ Consult experts for asset restructuring
👉 Need help? Connect with Efiletax for expert LLP tax filing and compliance support.
Summary
Draft Income Tax Bill 2025: LLPs likely to retain LTCG benefits. Key highlights, expert tips, and practical checklist for partners and tax consultants.