Liability of LLP Partners for Tax Dues and Taxation of Executors

The Income-tax Act, 2025 contains special provisions for unrecovered tax dues of a limited liability partnership and for taxation of income arising from the estate of a deceased person administered by an executor. These rules are now principally contained in Sections 331 and 312.

Section 331 - Liability of partners of limited liability partnership

Section 331 applies where tax due from a limited liability partnership, or from another person for a tax year during which that person was an LLP, cannot be recovered. The provision operates irrespective of the Limited Liability Partnership Act, 2008.

What is included in tax due?

For the current provision, the amount covered is not confined to basic income-tax. Section 331 expressly addresses tax including penalty, interest, fee or any other sum payable under the Act that is due and cannot be recovered in the circumstances specified by the section.

Burden on the partner

The statutory exception requires the concerned partner to establish that the inability to recover the dues cannot be attributed to gross neglect, misfeasance or breach of duty on that partner's part. Liability is therefore not avoided merely because the LLP itself has insufficient assets.

Section 312 - Executors and income of a deceased person's estate

Section 312 governs taxation of the income of the estate of a deceased person during administration by an executor. For this purpose, the term executor includes an administrator or another person administering the estate of the deceased.

Single executor and multiple executors

Residential status

For the statutory assessment of the estate, the executor is treated as resident or non-resident according to the residential status of the deceased for the tax year in which the death occurred.

Separate assessment of estate income

The executor's assessment in respect of the estate is made separately from any assessment that may be made on the executor for the executor's own personal income. This separation prevents the executor's personal income from being combined merely because the same individual administers the estate.

Period for which executor is assessed

Separate assessments are made for each completed tax year, or relevant part of a tax year, falling within the period beginning with the date of death and ending when the estate is completely distributed to the beneficiaries according to their respective interests.

Income distributed to a specific legatee

Where income of the estate for a tax year is distributed to, or applied for the benefit of, a specific legatee during that year, that income is excluded from the estate income assessed in the executor's hands and is included in the income of the specific legatee in accordance with the statutory rule.

Executor, administrator and legal representative

An executor ordinarily administers the estate under the authority of a will. The statutory definition also includes an administrator or other person administering the deceased person's estate. A legal representative, by contrast, is a broader concept relevant to liabilities and proceedings concerning the deceased. The applicable provision depends on whether the issue concerns income of the deceased up to death, income subsequently arising from the estate, or administration and distribution of the estate.

Former Section 167C of the Income-tax Act, 1961

Former Section 167C imposed joint and several liability where tax due from an LLP, or from another person for a previous year during which that person was an LLP, could not be recovered. Every person who was a partner during the relevant previous year was liable unless the partner proved that the non-recovery could not be attributed to gross neglect, misfeasance or breach of duty on the partner's part. The expression "tax due" included penalty, interest and other sums payable under the Act.

Former Section 168 of the Income-tax Act, 1961

Former Section 168 charged the income of a deceased person's estate in the hands of the executor. A sole executor was treated as an individual and multiple executors as an association of persons. The executor's assessment was separate from personal income, continued until complete distribution of the estate, and excluded estate income distributed or applied for the benefit of a specific legatee during the relevant previous year, with such income included in the legatee's total income.

1961 Act and 2025 Act correspondence

Practical points

1. For LLP dues, identify the relevant tax year and every person who was a partner at any time during that year.
2. The statutory defence focuses on whether non-recovery is attributable to the partner's gross neglect, misfeasance or breach of duty.
3. For a deceased person's estate, distinguish income earned up to the date of death from income arising to the estate after death.
4. Estate income administered by an executor is assessed separately from the executor's own income.
5. Distribution of estate income to a specific legatee may shift taxation of that income from the estate to the legatee under the applicable provision.

This article is a general explanation of the statutory framework. Actual liability depends on the relevant tax year, facts, LLP records, estate documents, will or administration, distribution of income and applicable transition provisions.