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Section 331 Income Tax Act 2025: When Are LLP Partners Personally Liable for Unpaid Tax?

Section 331 addresses recovery of tax and other amounts due from a limited liability partnership (LLP) when recovery from the LLP is not possible. It may impose joint and several liability on persons who were partners during the relevant tax year, subject to a specific statutory defence.

Current provision: Section 331 of the Income-tax Act, 2025, as amended by the Finance Act, 2026. The Act generally came into force on 1 April 2026. The statutory heading is Liability of partners of limited liability partnership in liquidation.

What does Section 331 provide?

Section 331 operates notwithstanding anything contained in the Limited Liability Partnership Act, 2008. Where tax, including penalty, interest, fee or any other sum payable under the Income-tax Act, cannot be recovered from either of the following, the section may apply:

  1. Section 331(a): The LLP, in respect of income of any tax year; or
  2. Section 331(b): Another person, in respect of income of a tax year during which that person was an LLP.

In such a case, every person who was a partner of the LLP at any time during the relevant tax year is jointly and severally liable for the tax due, unless that partner establishes the statutory defence described below.

When can the tax department seek payment from LLP partners?

1. A sum must be due under the Income-tax Act

The section concerns tax and other amounts payable under the Act. It is not a general provision imposing liability for every commercial debt of an LLP.

2. Recovery from the specified person must be unsuccessful

The statutory trigger is that the sum cannot be recovered from the LLP or the other person described in clause (b). A mere outstanding demand and the statutory condition of non-recovery should not be treated as identical without examining the facts and recovery record.

3. The individual must have been a partner in the relevant tax year

The text extends to every person who was a partner at any time during the relevant tax year. Thus, a partner who has retired may still fall within its scope for a tax year in which that person was a partner. Liability does not follow solely from being a partner in a different year.

4. Liability is joint and several, subject to the defence

Joint and several liability means that a liable partner may be pursued for the tax due rather than only for a percentage corresponding to a profit-sharing ratio. Whether the liability arises in an individual case remains subject to the statutory conditions and defence.

Can an LLP partner avoid personal liability?

Yes. Section 331 expressly permits a partner to avoid the liability by proving that non-recovery of the amount cannot be attributed to any gross neglect, misfeasance or breach of duty on that partner's part in relation to the LLP's affairs.

The burden is framed on the partner: the provision uses the words unless he proves. A partner disputing liability should preserve relevant records such as LLP agreements, management and delegation records, financial statements, correspondence about tax compliance, evidence of corrective steps and records explaining why the amount could not be recovered.

Important distinction: The defence is concerned with whether non-recovery is attributable to the partner's gross neglect, misfeasance or breach of duty. It is not an automatic exemption merely because a partner was non-designated or uninvolved in day-to-day operations.

Does Section 331 cover interest, penalty and fees?

Yes. Its wording expressly includes tax, penalty, interest, fee or any other sum payable under the Act. The amount must nevertheless be legally due and satisfy the recovery condition set out in Section 331.

Relevant statutory definitions and expressions

Firm - Section 2(45): The Income-tax Act adopts the meaning assigned to a firm in Section 4 of the Indian Partnership Act, 1932, and expressly includes a limited liability partnership as defined in Section 2(1)(n) of the Limited Liability Partnership Act, 2008.
Assessment - Section 2(13): Includes reassessment and recomputation.
Tax year: The period identified by the Act for taxation of income; the relevant tax year determines which persons fall within the partner-liability rule.
Joint and several liability: A legal expression indicating that each person held liable can be answerable for the whole recoverable amount, subject to applicable law.
Gross neglect, misfeasance or breach of duty: The specific grounds stated in Section 331 for assessing whether non-recovery is attributable to a partner. The section does not provide a separate exhaustive definition of these expressions.

Practical example

Suppose an LLP has an unpaid income-tax demand of Rs. 8 lakh for tax year 2026-27. Recovery from the LLP cannot be made. Persons who were partners at any time during that tax year may face joint and several liability under Section 331. A particular partner may resist that liability by proving that the failure to recover the dues cannot be attributed to gross neglect, misfeasance or breach of duty on that partner's part in relation to the LLP.

The illustration does not mean that liability arises automatically on every unpaid demand; the facts establishing non-recovery and the partner's defence are material.

Frequently asked questions

Does limited liability under the LLP Act always protect partners from income-tax recovery?

No. Section 331 expressly operates notwithstanding the Limited Liability Partnership Act, 2008, where its conditions are satisfied.

Can a retired LLP partner be liable?

Potentially, yes. The test is whether the person was a partner at any time during the relevant tax year, subject to the statutory defence.

Does the department have to show that recovery from the LLP is not possible?

Non-recovery from the LLP or the person described in clause (b) is an express condition of the provision.

Is a partner liable only for a share proportionate to the LLP's profit-sharing ratio?

No. Section 331 uses the expression jointly and severally liable, subject to the statutory defence.

Does the section apply only to the principal tax amount?

No. It also expressly refers to penalty, interest, fee and other sums payable under the Act.

Official legislation and related reading

Consult the Income-tax Act, 2025, as amended by the Finance Act, 2026 for the full text of Section 331. For connected provisions, see Section 329 (partners of firms) and Section 330 (dissolved firms).

Updated: 12 November 2026. This article provides general legal information and does not replace advice based on the LLP's records and the relevant recovery proceedings.