LLP Audit: Emerging Issues For FY 2025-26

Q: What are the audit and filing due dates for an LLP for FY 2025-26?

The Income Tax audit report is due by 21 October 2026 and ITR-5 by 21 November 2026 (CBDT Circular No. 07/2026). Under the LLP Act, Form 8 is due by 30 October 2026, which is not extended, and Form 11 was due by 30 May 2026.

Introduction: The Middle Ground That Creates Its Own Traps

LLPs sit in an awkward middle ground — governed by a separate Act with its own audit trigger, taxed largely like a firm, yet structurally closer to a company. That combination creates specific traps that don't show up in either a pure-firm or pure-company audit. This piece focuses on three: the two audit thresholds that don't move together, the tax exposure hiding inside a routine Pvt Ltd-to-LLP conversion, and the presumptive-taxation door that's closed to LLPs even though it's open to ordinary partnership firms.

This is Part 2 of our entity-wise audit series. See Part 1 on Private Limited Company Audit, and for the applicability rules across every entity type, our Tax Audit Applicability Guide.

Snapshot

LLPs face two separate, independently-triggered audit requirements — the LLP Act threshold and the Income Tax threshold rarely align.
LLPs are excluded from Section 44AD and 44ADA presumptive taxation entirely.
Converting a Pvt Ltd company into an LLP is not automatically tax-neutral — failing even one Section 47(xiiib) condition makes the conversion a taxable capital-gains event.

The Compliance Stack

Layer 1

LLP Act Audit

Rule 24 — mandatory only if turnover > ₹40 lakh or capital contribution > ₹25 lakh. Below both, self-certified.

Layer 2

Tax Audit

Sec. 44AB / New Sec. 63 — same ₹1 crore/₹10 crore thresholds as a firm, but no presumptive-scheme relief available.

Layer 3

GST Reconciliation

GSTR-9C, self-certified once aggregate turnover crosses ₹5 crore.

Issue 1: Two Audit Thresholds That Don't Move Together

Structural Trap

Because the LLP Act audit trigger (₹40 lakh turnover / ₹25 lakh contribution) is far lower than the Income Tax audit trigger (₹1 crore turnover), an LLP routinely needs an LLP Act audit years before it ever needs a tax audit — and once turnover crosses ₹1 crore, it needs both, prepared to different standards, often by the same auditor wearing two hats.

⚠️ Common Reporting Error Treating the LLP Act audit and the Income Tax audit as a single combined exercise, without separately documenting each in its own working paper file. The two audits test different things — the LLP Act audit is a financial-statement audit with no prescribed particulars format; the Income Tax audit is governed entirely by the 44-clause Form 3CD structure.

Issue 2: The Conversion Trap – Section 47(xiiib)

High-Value Litigation Area

Converting a Private Limited company into an LLP is a popular restructuring move. Section 47(xiiib) allows this without triggering capital gains, but only if every one of a specific set of conditions is satisfied — including a turnover cap (₹60 lakh in any of the three preceding years), a total-assets cap (₹5 crore in any of those three years, added by the Finance Act, 2016), restrictions on erstwhile shareholders' capital contribution and profit share in the LLP for five years, and a prohibition on any payment to a former shareholder out of accumulated profits for three years.

In ACIT v. Celerity Power LLP (2019) 174 ITD 433 (Mumbai ITAT), the Tribunal held that conversion of a company into an LLP is a "transfer" — and if even one condition under the Section 47(xiiib) proviso is not satisfied, the entire transaction becomes chargeable to capital gains under Section 45. The Tribunal also rejected the argument that the LLP could carry forward the erstwhile company's accumulated losses if the Section 47(xiiib) conditions weren't met.

✅ Reporting Impact Where an LLP was formed by conversion of a company, verify each Section 47(xiiib) condition for the year of conversion and re-verify the five-year lock-in condition in every subsequent year's audit until that window closes — a breach in year three still unwinds the original exemption.

Issue 3: Presumptive Taxation Exclusion

Sections 44AD and 44ADA are available to a "partnership firm" — but the definition used in both sections specifically excludes an LLP. An LLP therefore cannot opt for presumptive taxation at all, no matter how small its turnover, and must maintain regular books and face the standard Section 44AB threshold test.

⚠️ Why This Trips Up Clients Small LLPs formed by professionals who previously ran a presumptive-taxation partnership firm sometimes continue filing on a presumptive basis after converting to LLP structure, on the mistaken assumption that "firm" in common usage includes LLP. This is a straightforward, avoidable notice-generating error.

Issue 4: Partner Remuneration Under Section 40(b)

Interest and remuneration paid to LLP partners is deductible only within the limits and conditions of Section 40(b) — and only if authorised by, and computed strictly in accordance with, the LLP agreement. A remuneration clause that says "as may be mutually agreed from time to time" without specifying the manner of quantification is a common ground for disallowance.

Practical Point Before finalising Clause 21(c) of Form 3CD, cross-check the actual remuneration paid against the LLP agreement's exact wording — not just against the Section 40(b) slab limits. A slab-compliant amount paid under a vaguely worded deed clause is still disallowable.

Issue 5: Capital Gains on Retirement/Dissolution

Since the Finance Act, 2021 (AY 2021-22 onwards), the tax falls on the LLP itself. Section 45(4) taxes money or assets paid to a partner on reconstitution in excess of the partner's capital account balance, and Rule 8AB attributes that gain to the LLP's remaining capital assets. Section 9B treats a capital asset or stock-in-trade distributed to a partner on dissolution or reconstitution as transferred by the LLP at fair market value. CBDT Circular No. 14/2021 gives worked examples.

✅ Reporting Impact Where a partner has retired or the LLP has been dissolved during the year, review the retirement deed and settlement computation as a distinct working paper — this is not simply a capital-account adjustment for audit purposes.

Practical Audit Tips

Test LLP Act and Income Tax audit thresholds separately every year — don't assume both trigger together.
For converted LLPs, maintain a standing Section 47(xiiib) compliance tracker through the entire five-year lock-in window.
Read the actual LLP agreement clause on remuneration and interest before applying Section 40(b) limits.
Never apply presumptive taxation to an LLP, regardless of turnover.
Treat partner retirement/dissolution settlements as a distinct capital-gains review item.

Commonly Missed Items

LLP Act audit and Income Tax audit documented as two distinct files, not one blended exercise
Form 8 (Statement of Account & Solvency) figures reconciled against the audited financials before filing
Form 11 (Annual Return) partner details cross-checked against the actual partner register for the year
Designated Partner DIN/DPIN KYC status verified before finalising the audit
Section 47(xiiib) lock-in conditions re-verified in every year of the five-year window for converted LLPs
Remuneration clause in the LLP agreement matched word-for-word against amounts actually paid

Reference Table

Item	Threshold / Rule
LLP Act audit (Rule 24)	Turnover > ₹40 lakh, or capital contribution > ₹25 lakh
Tax audit (Section 44AB/63)	₹1 crore/₹10 crore (business); ₹50 lakh/₹75 lakh (profession) — same as a firm
Presumptive taxation (44AD/44ADA)	Not available to LLPs under any circumstances
Sec 47(xiiib) conversion – turnover cap	≤ ₹60 lakh in any of the three preceding financial years
Sec 47(xiiib) – total-assets cap	≤ ₹5 crore (book value) in any of the three preceding financial years
Sec 47(xiiib) – lock-in period	5 years on capital/profit share; 3 years on payment from accumulated profits

Frequently Asked Questions

If my LLP's turnover is below ₹40 lakh, do I need any audit at all?

Answer: Only if its capital contribution is also ₹25 lakh or less. Under Rule 24(8) of the LLP Rules, an audit is compulsory if either turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh, so an LLP with low turnover but contribution above ₹25 lakh still needs an LLP Act audit. On the Income Tax side, turnover below ₹40 lakh is well under the Section 44AB thresholds. Because LLPs cannot use presumptive taxation, the presumptive opt-out audit trigger never applies to them.

Can an LLP formed from a converted partnership firm use presumptive taxation?

Answer: No. The exclusion applies to the LLP form itself, regardless of what preceded it. Once the entity is an LLP, presumptive taxation under Section 44AD/44ADA is unavailable.

If our Pvt Ltd-to-LLP conversion met all Section 47(xiiib) conditions in the year of conversion, are we fully safe?

Answer: Only if the conditions continue to be met through the prescribed lock-in periods. A breach of the shareholding/profit-share condition in year three, for example, can still trigger capital gains retrospectively on the original conversion.

What are the audit and filing due dates for an LLP for FY 2025-26?

Answer: The Income Tax audit report is due by 21 October 2026 and ITR-5 by 21 November 2026 (CBDT Circular No. 07/2026). Under the LLP Act, Form 8 is due by 30 October 2026, which is not extended, and Form 11 was due by 30 May 2026.

📞 Need Help With Your LLP's Audit? We prepare the LLP Act audit and the Income Tax audit together, with conversion history and partner remuneration clauses checked against the actual LLP agreement.
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Audit of an LLP