Liability of partners of limited liability partnership in liquidation
Irrespective of anything contained in the Limited Liability Partnership Act, 2008, where any tax including penalty, interest, fees or any other sum payable under the Act is due, and cannot be recovered, from––
(a) the limited liability partnership in respect of any income of any tax year; or
(b) any other person in respect of any income of any tax year during which such other person was a limited liability partnership,
then, in such case, every such person who was a partner of such partnership at any time during the relevant tax year, shall be jointly and severally liable for the payment of such due amount, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the limited liability partnership.
Notes on Section 331 of Income Tax Act 2025
Explanation of Section 331 of the Income Tax Act 2025 (for Tax Year 2025-26)
This section imposes personal liability on the partners of a Limited Liability Partnership (LLP) in case the LLP is unable to pay its outstanding tax dues. It overrides any provisions in the Limited Liability Partnership Act, 2008, which usually limits a partner’s liability.
Key Provisions:
- When Does This Apply?
- If any tax, penalty, interest, fee, or other dues remain unpaid under the Income Tax Act, and
- The dues cannot be recovered from the LLP or from any other relevant person.
- Who Becomes Liable?
- Every person who was a partner of the LLP during the tax year in which the liability arose.
- These partners will be jointly and severally liable, meaning the tax authorities can recover the full amount from any one or all of the partners.
- Can a Partner Avoid Liability?
- A partner can avoid personal liability only if they prove that the LLP’s failure to pay was not due to their:
- Gross neglect (serious carelessness),
- Misfeasance (wrongful or dishonest acts), or
- Breach of duty (failure to act responsibly in managing LLP affairs).
- A partner can avoid personal liability only if they prove that the LLP’s failure to pay was not due to their:
Implications:
- Even though an LLP is a separate legal entity, partners can still be held personally responsible for tax dues if the LLP is unable to pay.
- This provision ensures that partners cannot escape tax liability by merely dissolving or liquidating the LLP.
- Partners should ensure proper compliance and financial management to avoid personal exposure to tax debts.