Accounting and Bookkeeping Laws and Regulations for LLP (Limited Liability Partnership) Businesses in India

A Limited Liability Partnership (LLP) is a hybrid business structure in India that combines the advantages of both partnerships and companies. LLPs provide limited liability protection to partners while allowing them operational flexibility. The accounting and bookkeeping regulations for LLPs are outlined under various laws to ensure transparency and compliance.

1. Laws Governing LLPs

The primary laws governing LLPs in India are:

• Limited Liability Partnership Act, 2008: Governs the formation, operation, and regulation of LLPs. It defines the legal structure and operational framework for LLPs.
• Income Tax Act, 1961: Regulates the taxation of income and includes accounting and reporting requirements.
• Goods and Services Tax (GST) Act, 2017: Governs GST compliance for businesses involved in the supply of goods and services.
• The Indian Contract Act, 1872: Governs contracts and business transactions.
• The Transfer of Property Act, 1882: Regulates the transfer of property used in business.
• The Negotiable Instruments Act, 1881: Governs transactions involving negotiable instruments like cheques.

2. Statutory Norms of Bookkeeping and Accounting

a. Accounting Standards

• Indian Accounting Standards (Ind AS): LLPs must follow Ind AS if they have a net worth of ₹250 crore or more or are listed on a stock exchange. Smaller LLPs generally adhere to the Generally Accepted Accounting Principles (GAAP).

b. Books of Accounts

LLPs must maintain the following mandatory books of accounts:

1. Day Book or Journal: Records all daily transactions.
2. Cash Book: Records cash transactions.
3. Ledger: Consolidates all accounts, categorized into debits and credits.
4. Purchase Register: Tracks all purchase transactions.
5. Sales Register: Logs all sales transactions.
6. Stock Register: Keeps details of inventory and stock movements.
7. Bank Book: Records bank transactions.
8. Fixed Asset Register: Lists and tracks the company’s fixed assets.
9. Partner’s Capital Account: Records each partner’s contributions and withdrawals.
10. Partner’s Current Account: Captures transactions between the partners and the LLP.

c. Mode of Accounting

• Accrual Basis: LLPs must generally use the accrual basis of accounting, where transactions are recorded when they occur, regardless of cash flow.
• Cash Basis: Not typically used for LLPs, except in specific cases or for smaller businesses under certain conditions.
• ERP Systems: Utilizing ERP (Enterprise Resource Planning) systems with audit trails can improve accuracy and efficiency. ERP systems manage transactions, generate financial reports, and maintain audit trails to ensure compliance and transparency.

3. Income Tax Laws for Accounting

a. Income Tax Act, 1961

• Taxation: LLPs are taxed as separate entities at a rate of 30% on their taxable income, plus applicable surcharge and cess. The income is taxed at the firm level, and no tax is levied on individual partners on the firm’s income.
• Books of Accounts: LLPs must maintain books of accounts and records that provide a true and fair view of their financial position and performance. These records must be kept for a period of 8 years.
• Income Declaration: All income must be declared, and expenditures must be substantiated with proper documentation.

4. GST Laws for Accounting and Bookkeeping

a. Goods and Services Tax Act, 2017

• Registration: LLPs must register for GST if their turnover exceeds ₹40 lakhs (₹20 lakhs for North-Eastern states).
• Invoicing: GST-compliant invoices must be issued for every supply of goods and services.
• GST Returns: LLPs are required to file GST returns (GSTR-1, GSTR-2, GSTR-3B) regularly. Accurate reconciliation of sales and purchase data is essential for compliance.
• Input Tax Credit (ITC): Proper documentation is needed to claim ITC on purchases.

5. Income Tax Compliances for Accounting and Bookkeeping

• Annual Filing: LLPs must file annual income tax returns, detailing income, expenses, and taxes paid.
• Tax Audits: A tax audit is mandatory if the turnover exceeds ₹1 crore (or ₹5 crore in some cases). The audit report must be filed along with the income tax return.
• Advance Tax: LLPs must pay advance tax if their tax liability exceeds ₹10,000 in a financial year.

6. Import and Export Regulations

• Import Export Code (IEC): LLPs engaged in import or export activities must obtain an IEC from the Directorate General of Foreign Trade (DGFT).
• Customs Compliance: Proper documentation, including invoices, shipping bills, and customs declarations, must be maintained for import and export transactions.
• GST on Imports: GST on imports must be paid, and proper records must be kept to claim input tax credits.

7. Other Statutory Laws

• Employment Laws: LLPs must comply with labor laws, including wage payments, employee benefits, and statutory contributions such as Provident Fund (PF) and Employees’ State Insurance (ESI).
• Environmental Regulations: Depending on the nature of the business, compliance with environmental regulations may be required.

Audit Provisions

• Statutory Audit: LLPs must undergo a statutory audit if their turnover exceeds ₹40 lakhs. The audit must be conducted by a qualified Chartered Accountant, and the audit report must be filed with the Registrar of Companies (RoC) along with the financial statements.

Conclusion

LLPs in India are subject to a detailed framework of accounting and bookkeeping regulations to ensure compliance and accuracy. Maintaining proper books of accounts, adhering to income tax and GST laws, and following import-export regulations are critical for smooth business operations. Utilizing ERP systems with audit trails can greatly enhance the efficiency and accuracy of accounting processes.

For expert accounting and bookkeeping services tailored to your business model—whether manufacturing, service, or trading—contact WynSwell. We offer comprehensive services to ensure your LLP meets all statutory requirements efficiently and accurately.