Section 167C: Liability of LLP Partners for Unrecovered Tax Dues
Section 167C of the Income-tax Act, 1961 provides for joint and several liability of partners when tax dues cannot be recovered from a limited liability partnership (LLP). The corresponding rule under the Income-tax Act, 2025 is Section 331.
Meaning and scope of Section 167C
The provision operates notwithstanding the general limited-liability framework of the Limited Liability Partnership Act, 2008. It addresses a specific situation: an LLP's income-tax dues cannot be recovered from the LLP, or dues cannot be recovered from another person in respect of income of a year during which that person was an LLP.
When that condition is met, every person who was a partner at any time during the relevant previous year is jointly and severally liable for the unpaid amount, unless that partner establishes the statutory defence.
Conditions for personal liability of LLP partners
- There must be an amount due under the income-tax law.
- The amount must relate to income of the relevant year of the LLP, including the situation where another person was an LLP during that year.
- Recovery of the amount from the LLP or the relevant other person must have failed.
- The individual concerned must have been a partner at some time during the relevant year.
- The partner may avoid liability by proving that the non-recovery was not attributable to gross neglect, misfeasance or breach of duty on the partner's part concerning LLP affairs.
Important legal terms explained
Joint and several liability
Each liable partner may be pursued for the recoverable dues, rather than only for a fraction matching the partner's capital contribution or profit-sharing ratio. Actual recovery remains subject to the applicable tax recovery procedures and the statutory defence.
Gross neglect
A serious failure to exercise the care required in managing or overseeing LLP affairs. Whether conduct amounts to gross neglect depends on the evidence and circumstances.
Misfeasance
Wrongful performance of an act or misuse of authority in connection with LLP affairs that is relevant to the inability to recover dues.
Breach of duty
Failure to discharge a duty owed in relation to the LLP's affairs. The partner must show that non-recovery cannot be attributed to the specified conduct on their part.
Tax due
Under the Explanation to Section 167C, the expression includes penalty, interest and any other sum payable under the 1961 Act, in addition to tax. Section 331 of the 2025 Act expressly refers to tax, penalty, interest, fee and any other sum payable under that Act.
Section 331 of the Income-tax Act, 2025
Section 331 continues the special recovery rule for LLP partners. It refers to an LLP's unpaid amounts relating to a tax year and expressly lists tax, penalty, interest, fee and other sums payable. The partners concerned are those who were partners at any time during the relevant tax year. They remain entitled to establish that non-recovery was not attributable to their gross neglect, misfeasance or breach of duty.
| Issue | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Relevant provision | Section 167C | Section 331 |
| Time reference | Previous year | Tax year |
| Amounts covered | Tax, including penalty, interest and other sums payable | Tax, penalty, interest, fee and other sums payable |
| Partners covered | Partners at any time during relevant previous year | Partners at any time during relevant tax year |
| Defence | Non-recovery not attributable to gross neglect, misfeasance or breach of duty | Same substantive defence |
Illustration: Unpaid tax of an LLP
Suppose an LLP has unpaid income-tax dues of Rs. 12 lakh, including applicable interest, and the tax authority cannot recover the amount from the LLP. A person who was a partner during the relevant year may face recovery proceedings for the outstanding dues even if that person subsequently retired. However, the partner may establish that the non-recovery was not caused by their gross neglect, misfeasance or breach of duty. The result depends on the facts and the evidence.
Practical considerations for partners
- Keep records of partner appointments, retirement dates and relevant LLP agreements.
- Maintain evidence of tax filings, payment instructions, compliance oversight and correspondence.
- Review outstanding demands and the steps taken to recover amounts from the LLP.
- Respond to tax notices with documentary evidence supporting any available statutory defence.
- Do not assume that retirement, a small profit share or limited contribution automatically removes the statutory exposure.
Legislative background
Section 167C was inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010. Its Explanation concerning the meaning of tax due was inserted by the Finance Act, 2013 with effect from 1 June 2013. The updated legislation places the corresponding provision in Section 331 of the Income-tax Act, 2025.
Official legislation and reference materials
- Income Tax Department: Section 167C of the Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025 (Section 331)
- Income Tax Department: Income-tax Act, 2025 as amended by Finance Act, 2026
- Income Tax Department: LLP taxation guide
Frequently asked questions
Can an LLP partner be personally liable for income-tax dues?
Yes. If statutory conditions are satisfied and tax dues cannot be recovered from the LLP, Section 167C or Section 331, as applicable, can impose joint and several liability on partners of the relevant year.
Does a retired partner remain exposed?
Potentially yes. The provision covers persons who were partners at any time during the relevant year, even if they have since retired. The statutory defence remains available.
Does the provision cover interest and penalties?
Yes. Both provisions extend beyond the basic tax amount; Section 331 expressly includes fees as well.
This article provides general legal information. Liability and recovery depend on the applicable tax year, assessment records, statutory notices and facts of each case.