Read this blog to understand whether or not you need to audit the annual account of your LLP if your annual turnover is less than 40 lakh.
No, It is not necessary to have an LLP’s audit annual account. LLPs have fewer annual filing and account maintenance requirements than a Private Limited Company. In this article, we will go over the annual compliances that an LLP must meet, such as annual filing with the ROC and account maintenance.
LLP – An Overview
The LLP is a new business entity in India. The LLP Act of 2008 established LLPs, and the LLP business structure was rapidly accepted by small and medium businesses due to the limited mandates affiliated with starting and running a business as an LLP. A LLP is an unconventional corporate business form that combines the benefits of a company’s indebtedness with the adaptability of a partnership. The LLP may be a distinct legal entity, subject to the greatest capacity of its assets, but the partners are responsible for the debts to their agreed ability to contribute within the LLP. Furthermore, no partner is responsible for the individual or unauthenticated actions of other LLP firm partners. An LLP firm’s partners’ responsibilities and obligations are ruled by an agreement between the partners. LLP incorporates elements of both a “corporate structure” and a “partnership firm structure.” A partnership of limited liability, or LLP, is a hybrid of a parent organization and its subsidiaries.
Annual Filing of LLP
Annual returns may even become a mandatory filing for all LLPs in India. The annual return should be submitted with the Ministry of Corporate Affairs in the format prescribed. Annual returns submitted with the MCA are not exclusive to annual returns lodged with the tax department. An LLP’s annual return is largely attributable within sixty days of the fiscal year’s end. LLPs must retain a financial year that begins on April 1st and comes to an end on March 31st, so an LLP’s annualized return is attributable on or before May 30th of each fiscal year.A LLP’s Statement of Accounts and Solvency, on the other hand, is due within thirty days of the close of the financial year. Statement of Accounts and Solvency is a filing requisite for all LLPs in India. The Statement of Accounts and Solvency would include a statement by the assigned collaborators on the LLP’s state of financial viability, as well as details on the LLP’s declaration of assets and debts and declaration of revenue and expenditure.
Audit Requirement for LLP
If an LLP’s annual turnover or contribution outdoes ₹40 lakhs in any financial year, it must have its accounts evaluated by a practicing Chartered Accountant. To meet the criteria for the audit deduction, the LLPs accounts submitted with the ROC has to include a declaration by the Partners asserting that the Collaborators recognize their obligations for abiding with financial and accounting declaration prerequisites.
LLP Audit Exemptions
Such regulations, among many other things, outline that every LLP whose revenue does not exceed ₹40,00,000/- in any fiscal period or whose turnover does not exceed ₹25,00,000/- is not obligated to get its own financial statements audited. Nevertheless, if the collaborators of such LLP (limited liability partnership) tend to favor to get the LLP’s financial statements audited, the accounts must be audited only in accordance with the principles. LLPs are expected to employ an LLP accountant one month prior to the end of fiscal year. To put it another way, an accountant should be hired once a year before the month of March.
LLP Liability for Audits
LLPs with a turnover of more than ₹40,00,000/- or with an ability to contribute more than ₹25,00,000/- are allowed to have their annual accounting reports audited by a practicing accountant. As a result, all other LLPs are exempt from a legally required audit of their financial statements.
Penalties Related to LLP Audits
Any LLP that fails to fulfil the criteria will receive a fine of not less than ₹25,000 but not more than ₹5,000,000. Every designated member shall be subject to penalties of ₹10,000, not exceeding surpassing ₹5,00,000/-.
What is Form 11?
Form -11 is the annual return. It includes the smallest print of all the affiliates, their commitments to the Limited Liability Partnership, and so on. Form-11 must be filed within sixty days of the end of the fiscal year. i.e., once a year before or on May 30th.The Form 11 must be signed digitally by one of the LLP’s Designated Collaborators. If the total liability of the Liability Liability Partnership partners’ donations exceeds ₹50 lakhs or the LLP’s revenue surpasses ₹5 crores, the LLP Form 11 should be accredited by an organisation Secretary in full-time practice.
LLP Tax Audit
A tax audit for a Limited Liability Partnership (LLP) serves as a vital mechanism for validating the accuracy and comprehensiveness of financial and tax-related information disclosed in the LLP’s tax returns. The primary objective is to ascertain compliance with the tax laws and regulations that govern LLPs.
Mandatory Requirement
LLPs are mandated to undergo a tax audit as per the provisions of the Income Tax Act, 1961, provided they meet certain predetermined criteria. One of the key conditions triggering the need for a tax audit is exceeding a specified turnover threshold. LLPs falling within this criteria bracket are legally obliged to conduct a tax audit.
Conducted by
Typically, a tax audit is carried out by a qualified chartered accountant or a tax professional possessing the expertise to meticulously examine the LLP’s financial records and tax returns. This examination aids in calculating the taxable income accurately and identifying any discrepancies that need to be rectified for compliance.
The Audit Report
Following the comprehensive review, the appointed auditor issues a detailed tax audit report, commonly known as Form 3CD. This report encompasses a plethora of essential details related to the audit findings, ensuring tax compliance, and other pertinent information crucial for tax assessment and statutory compliance.
Statutory Audit for LLP
A statutory audit for a Limited Liability Partnership (LLP) constitutes a comprehensive examination of the LLP’s financial statements and accounting records. The primary objectives are to assess the accuracy, fairness, and compliance of the financial data with both accounting standards and the statutory requirements applicable to LLPs.
Mandatory Requirement
In compliance with the provisions of the Limited Liability Partnership Act, 2008, and the corresponding rules, all LLPs are legally obligated to undergo a statutory audit. Unlike tax audits, the requirement for a statutory audit applies to all LLPs, regardless of their turnover. This audit is essential to ensure that the financial information presented is accurate and in line with the stipulated legal and accounting standards.
Conducted by
A statutory audit is conducted by an independent qualified chartered accountant, appointed by the LLP’s partners. The independence of the auditor is paramount, ensuring an impartial and objective assessment of the financial records and statements. This impartiality is fundamental to instill confidence in the audit process and its outcomes.
The Audit Report
Upon completion of the statutory audit, the appointed auditor issues a comprehensive report known as the Statutory Audit Report. This report encompasses an opinion regarding whether the financial statements present a true and fair view of the LLP’s financial position and whether they comply with relevant laws and accounting standards. This report plays a pivotal role in instilling confidence in stakeholders and aiding in sound decision-making.
LLP Audit Applicability
LLPs are mandated to undergo an audit under specific circumstances, and understanding the applicability of an LLP audit is crucial. There are three main categories that define when an audit is required for an LLP.
Mandatory Audit
Limited Liability Partnerships (LLPs) must undergo a mandatory audit if their annual turnover surpasses ₹ 40 lakhs or if their capital contribution exceeds ₹ 25 lakhs. These thresholds were increased from ₹ 25 lakhs to ₹ 40 lakhs for turnover and from ₹ 15 lakhs to ₹ 25 lakhs for contribution by the Companies (Amendment) Act, 2020.
Voluntary Audit
LLPs with turnover or contribution falling below the prescribed limits for mandatory audit have the option to undergo a voluntary audit. Opting for a voluntary audit allows the LLP to provide assurance to partners and stakeholders regarding the accuracy and reliability of the LLP’s financial statements.
Tax Audit
LLPs whose turnover exceeds ₹ 1 crore during a financial year are also required to undergo a tax audit as per the Income Tax Act, 1961. The purpose of a tax audit is to ensure that the LLP has maintained proper books of accounts and has complied with tax laws, providing additional transparency and accountability.
Tax Audit Requirements
For an LLP with more than ₹100 lakh of annual turnover, a GSTNumber Search and Tax audit of the accounts is required. (up to FY 2019-20). Nevertheless, it may be pertinent for turnovers exceeding ₹500 lakhs beginning in 2020-21. Income tax returns must be filed in accordance with ITR 5, and thus the bandwidth for an LLP is 30%. This is frequently submitted irrespective of audit potential application. Section 115JC asserts that the tax liability by an LLP should be no more than 18.5 percent of adjusted overall revenue. If an LLP’s turnover doesn’t really surpass ₹40,00,000/-, no Limited Liability Partnership Audit is considered necessary, and the maturity period to file the tax is July 31st.Those with a turnaround of more than ₹40,00,000/- will be required to file their tax returns by September, 30.
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Conclusion
If it still gets really tiring and confusing for you, Vakilsearch can help in this regard. If you are the owner of an LLP, you can get from the experts of Vakilsearch to learn more about the audit annual account.
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FAQs
What is the tax audit limit for LLP?
The tax audit limit for LLP is ₹ 1 crore turnover or more in a financial year.
What is the limit and due date for an LLP audit?
LLPs with a turnover exceeding ₹ 1 crore are required to undergo audit, due by September 30th of each year.
What is the turnover limit for LLP audit applicability?
LLP audit is mandatory if the turnover exceeds ₹ 40 lakhs or capital contribution exceeds ₹ 25 lakhs.
What is the maximum audit limit?
The maximum audit limit for LLP is ₹ 5 crore.
Is the tax audit limit 1 crore or 2 crore?
The tax audit limit for LLP is ₹ 1 crore.
Can I show profit below 8% without audit?
Profit below 8% in an LLP requires a tax audit irrespective of turnover.
When is an audit of an LLP mandatory?
Audit of an LLP is mandatory if turnover exceeds ₹ 1 crore or contribution exceeds ₹ 50 lakhs.
Is 44AD applicable to LLP?
No, 44AD is not applicable to LLPs; it's for individuals, HUFs, and firms.
Is 3CD applicable for LLP?
Yes, 3CD is applicable for LLPs subject to audit under the Income Tax Act.
What is Form 3 in LLP?
Form 3 in LLP is the 'Information with regard to limited liability partnership agreement and changes, if any, made therein.'
Does an LLP need to file a tax return?
Yes, an LLP needs to file a tax return under the Income Tax Act.
