[Need Help] Does investing in Mutual Funds count as an expense for LLP?

Toci P (Manager) (31 Points)

10 December 2021  

Hi team,

Here's a example scenario. Need suggestions on the best way to plan taxes.

Business Type: LLP

Revenue: ₹1 crore

TDS Deposited: ₹10 lakh

Profit Before Tax: ₹50 lakh

Now assuming income tax @ 30%, around ₹30 lakh profit will already be covered because of the TDS of ₹10 lakh already deposited. Which means we will not have to pay any taxes till ₹30 lakh as profit.

But since actual profit is ₹50 lakh, we have excess of ₹20 lakh over and above the TDS covered profit.

Now we want to know what is the best way to expend these ₹20 lakh and save the tax burden?

We are contemplating the following options but need your suggestions to know whether they're viable or not;

  1. Make an investment of ₹20 lakh in Mutual Funds (or direct stocks). Will this investment be treated as an expense and our profit will fallback to ₹30 lakh from ₹50 lakh as mentioned above? 
  2. Manke an investment of ₹20 lakh in Real Estate. Will this investment be treated as an expense and our profit will fallback to ₹30 lakh from ₹50 lakh as mentioned above? 
  3. Payout ₹20 lakh as remunerations to the LLP designated partners (₹10 lakh each). This way the partners will be liable to individual income tax brackets. After paying their individual income taxes, they can put the money back into the LLP in the form of share capital.

Apart from the above mentioned 3 options, are there any other better options available to save tax?
Also, which one of the above 3 is best suited for such a scenario?

Expert suggestions are welcome!

Thank you.