Conversion of Limited Company into LLP

For the conversion of a private limited company into an LLP, the turnover or total gross receipts must not exceed ₹60 lakh in any of the preceding three financial years (according to Section 56 & Third Schedule of the LLP Act).   

In this calculation, interest income from FD, mutual funds, or any other financial investments can’t be treated as “turnover”, because turnover refers only to revenue generated from the core business operations.

However, such interest may be considered part of “gross receipts” if the company’s principal business itself involves financial activities or investment operations. For a normal operating company, this interest is classified as “other income” and does not affect the ₹60-lakh turnover condition for conversion.

So, unless your company is engaged in finance/investment as its primary/main business operation, FD or mutual fund interest will not be counted toward the ₹60-lakh limit. Seeking professional help is advisable for detailed information on converting a private limited company into an LLP. Consult experts like Setindiabiz or others who provide best-in-class business registration services in India.

practical answer to your question about whether interest from fixed deposits (FD) and mutual funds should be counted as part of “turnover/gross receipts” when checking the ₹60 lakh threshold for conversion of a private limited company into an LLP under Indian law.

1. Regulatory Context

For a private limited company to convert into an LLP and claim tax-neutral treatment on conversion under Section 47(xiiib) of the Income-tax Act, 1961, one of the specified conditions is that:

“the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place shall not exceed ₹60 lakh.” 

2. How “Turnover/Gross Receipts” Is Typically Understood in This Context

The phrase in the statute and accompanying guidance refers to total sales, turnover or gross receipts in the business of the company.

In most Indian statutory contexts:

• Turnover/Revenue refers primarily to the receipts arising from the core business activities, such as sale of goods or provision of services.

• Other income items (like interest, dividend, rental income, etc.) are not normally included in “turnover”, but are reflected under “other income” in the profit and loss account.

Specifically:

• Income from interest on FDs, mutual funds, fixed deposits, and similar financial instruments is usually classified as “other income” (not turnover) for accounting and tax computation.

• Sales/turnover/gross receipts in the context of conversion refer to business operational receipts, not passive income items.

• Professional and tax literature interpreting Section 47(xiiib) suggests applying the usual accounting classification to determine turnover/gross receipts for the threshold. 

3. Practical Application: Include or Exclude Interest?

Interest on FD / mutual funds should not be included in “turnover/gross receipts” for the ₹60 lakh test.

Because:

• Turnover/sales relates to business income from principal activities.

• Interest and similar investment income are categorized separately in accounts under “other income.”

• Including interest income would distort the threshold intended for small operating businesses.

Thus, for the purpose of checking the ₹60 lakh limit under Section 47(xiiib):

• Only operational receipts (e.g., sale of products/services) are counted toward turnover.

• Interest income from FDs, mutual funds, etc., is generally excluded from the statutory turnover test.

However, you should confirm this treatment with the reporting accountant/CFO to align classification in financials and tax filings prior to conversion.