LLP Partners' Liability for Unpaid Tax in Liquidation: Section 331, Income Tax Act 2025

Under section 331 of the Income-tax Act, 2025, if tax (with penalty, interest, fee or any other sum under the Act) cannot be recovered from a limited liability partnership for a tax year, every person who was a partner at any time during that tax year is jointly and severally liable for the unpaid amount. A partner escapes only by proving that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part in relation to the LLP's affairs.

The section applies "irrespective of anything contained in" the Limited Liability Partnership Act, 2008. So the usual protection of an LLP partner, that liability is limited to the contribution, does not stop the tax department from coming to the partner for these dues. This guide explains who is covered, what is covered, how the burden of proof works, and what partners and CAs should do about it. The law is stated as amended by Finance Act 2026, effective 1 April 2026.

What does section 331 of the Income-tax Act, 2025 say?

The section has three working parts:

1. Trigger. Tax, penalty, interest, fee or any other sum payable under the Act is due and cannot be recovered from the LLP for a tax year, or from any other person for a tax year in which that person was an LLP (section 331(a) and (b)).
2. Who is liable. Every person who was a partner of the LLP at any time during the relevant tax year.
3. Defence. The partner proves that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP.

Who is liable under section 331: only current partners?

No. The test is whether the person was a partner at any time during the relevant tax year, not whether he is a partner today or when the demand is raised. A partner who joined in February of the tax year, or who retired in the same year, falls within the wording. A person who was a partner only in an earlier or later tax year does not, for dues of a different year.

What dues are covered?

Section 331 uses a wide phrase: "any tax including penalty, interest, fee or any other sum payable under the Act". It is not limited to income tax on the LLP's profit. Penalty, interest and fee for a tax year that cannot be recovered from the LLP are all within it.

What does "jointly and severally liable" mean in practice?

Each covered partner is answerable for the whole unrecovered amount, not just a share. The department can pursue any one of them, or all of them, until the dues are cleared. The section does not say how partners share the burden among themselves. That is a matter for the LLP agreement and general law, so check it before relying on any contribution right.

How can a partner avoid liability?

The burden is on the partner. He must prove that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP. The section sets no list of evidence. Useful records in practice are:

• Board or partners' meeting minutes showing tax was discussed and funds were allocated.
• Proof that the partner was not in charge of tax compliance, together with the designated partner's responsibilities as recorded in the LLP's papers.
• Correspondence where he asked for payment and was overruled or kept uninformed.
• Evidence that the assets or cash existed and were not diverted by him.

Whether a given record is enough is decided on the facts by the assessing authority and, on appeal, by the appellate forums. The section only fixes the standard: gross neglect, misfeasance or breach of duty.

Worked example 1: who can be pursued for the shortfall?

Assume tax year 2026-27. Alpha LLP has more than one partner during the year. The dues that remain after recovery steps against the LLP are as follows.

Step	Amount (Rs)
Tax payable	18,00,000
Interest	2,40,000
Penalty	60,000
Total due (18,00,000 + 2,40,000 + 60,000)	21,00,000
Less: recovered from the LLP's bank account and assets	6,00,000
Unrecovered (21,00,000 - 6,00,000)	15,00,000

Under section 331, the department may recover the entire Rs 15,00,000 from any one covered partner. It does not have to divide the amount into Rs 5,00,000 each. If it recovers Rs 15,00,000 from one partner, the dues are cleared. Whether that partner can claim a share from the other two is not answered by the section.

Worked example 2: which partners are covered?

Assume the same Rs 15,00,000 shortfall relates to tax year 2026-27. The LLP had these partners over time.

Partner	Period as partner	Partner during 2026-27?	Covered by s. 331?
Ravi	1 Apr 2026 to date	Yes, whole year	Yes
Meena	1 Feb 2027 to date	Yes, last two months	Yes
Suresh	Till 31 Mar 2026	No	No, for 2026-27 dues
Kavita	1 Apr 2027 onwards	No	No, for 2026-27 dues

Ravi and Meena are each exposed to the full Rs 15,00,000 even though Meena joined in the last two months. Suresh and Kavita are outside the section for this tax year.

Real-life scenario 1: the sleeping partner

Ravi and Meena start a trading LLP. Meena handles accounts and tax payments. Ravi invests and signs documents but never looks at filings. The LLP stops trading and its bank balance is nil while Rs 15,00,000 of tax is outstanding. The department proceeds against Ravi. His position under section 331 is that he is a partner for the year, so the liability exists unless he proves the non-recovery is not due to his own gross neglect, misfeasance or breach of duty. Simply saying "Meena managed tax" may not be enough. He should be able to show what he did to ensure the LLP's affairs were in order.

Real-life scenario 2: the partner who objected in writing

Sunita is a partner in an LLP that owes tax. She repeatedly wrote to the other partners asking that funds be set aside for the tax, and her emails and minutes are on record. The funds were instead spent by the others. Sunita can place these records before the authority to prove that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on her part. The outcome depends on the facts and the authority's assessment.

Common mistakes

• Assuming LLP status shields the partner. Section 331 applies irrespective of the LLP Act, 2008.
• Thinking a retired partner is safe. If he was a partner at any time in the relevant tax year, he is within the section for that year's dues.
• Assuming liability is split pro rata. It is joint and several, so one partner can be asked for the full amount.
• Waiting to build a defence. The burden is on the partner. Keep minutes, emails and records of who handled tax from the start.
• Ignoring small unpaid notices. Interest, penalty and fee are part of the recoverable sum, and they add to what partners may later owe.
• Ignoring the exit paperwork. When leaving an LLP, check outstanding dues for the years in which you were a partner. Exit does not remove liability for those years.

Quick reference

Question	Answer under section 331
What triggers it?	Dues for a tax year that cannot be recovered from the LLP
Who is liable?	Every person who was a partner at any time during that tax year
How much?	The whole unrecovered amount, jointly and severally
What dues?	Tax, penalty, interest, fee or any other sum under the Act
Defence?	Prove the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his part
Who must prove?	The partner
Overrides the LLP Act, 2008?	Yes, irrespective of anything in it

How should an LLP and its CA reduce the risk?

The practical steps are routine: file returns and deposit tax on time, keep a record of who is responsible for tax compliance, minute the decisions on tax payment, and close tax years cleanly before any partner exits or the LLP winds up. For a CA firm with several LLP clients, the challenge is tracking dues, notices and partner changes across the book. Finexo's practice management software helps you track deadlines and client-wise tasks so these items are not missed. It does not file returns or settle dues for you.

For another section where the person who pays has duties under the Act, see our guide on TDS on rent under the Income-tax Act, 2025.

How is this different from a private company director's liability or a dissolved firm?

Point	LLP partner (s. 331)	Private company director (s. 323)	Dissolved firm's partner (s. 330(3))
Who is liable	Partner at any time in the relevant tax year	Director at any time in the relevant tax year	Partner at the time of dissolution or discontinuance, and legal representative of a deceased partner
Nature	Joint and several	Joint and several	Joint and several
Defence	Prove no gross neglect, misfeasance or breach of duty	Same	Section 330(3) states no such defence

For the company equivalent, see our guide on company in liquidation and director liability.

Where this is in the Act

• Section 331: Liability of partners of limited liability partnership in liquidation.
• Section 331(a): dues not recoverable from the LLP for a tax year.
• Section 331(b): dues not recoverable from another person for a tax year in which that person was an LLP.
• Section 323: liability of directors of a private company. Section 330(3): partners of a dissolved firm.

This article is general information on the Income-tax Act, 2025 and is not tax or legal advice. Facts decide each case, so consult a qualified professional before acting.