Audit Requirements for LLP in India: Threshold Limits, Compliance & Penalties Explained

Limited Liability Partnerships (LLPs) have become one of the most preferred business structures in India for professionals, startups, and small enterprises. Combining the flexibility of a partnership and the benefits of limited liability like a company, LLPs are regulated under the Limited Liability Partnership Act, 2008, and administered by the Ministry of Corporate Affairs (MCA).

However, like any other registered business entity, an LLP must maintain proper books of accounts and get them audited if it crosses certain thresholds. The audit requirement for LLPs is often misunderstood, especially among small businesses. This article explains in detail when an LLP audit is mandatory, who can conduct it, what reports are needed, and the penalties for non-compliance.

1. What is an LLP Audit?

An LLP audit is an independent examination of the books of accounts of a Limited Liability Partnership by a Chartered Accountant (CA) to verify that the financial statements present a true and fair view of the business affairs.

The main objectives of an LLP audit are to:

  • Ensure accuracy and reliability of the accounts.

  • Check compliance with the LLP Act and accounting standards.

  • Detect and prevent fraud or financial misstatements.

  • Facilitate statutory filing and compliance with tax authorities.

2. Statutory Audit Requirement for LLP

Unlike companies, LLPs are not required to undergo audit by default. However, Rule 24 of the LLP Rules, 2009 specifies the circumstances when an LLP must get its accounts audited.

An audit becomes mandatory if:

  • The annual turnover exceeds ₹40 lakhs, or

  • The total capital contribution exceeds ₹25 lakhs.

If the LLP crosses either of these limits in any financial year, it is required to get its books of accounts audited by a practicing Chartered Accountant.

Example:

If an LLP’s capital contribution is ₹30 lakh but its turnover is ₹35 lakh, an audit is mandatory. Similarly, if turnover is ₹45 lakh but contribution is only ₹20 lakh, audit is still required due to turnover exceeding the threshold.

3. LLPs Below the Audit Threshold

If an LLP’s turnover is below ₹40 lakh and capital contribution is below ₹25 lakh, it is not required to get its accounts audited.

However, the partners may voluntarily choose to have an audit for greater transparency, credibility, and ease in obtaining loans or investment.

Even if audit is not mandatory, such LLPs must still:

  • Maintain proper books of account on a cash or accrual basis.

  • Prepare a Statement of Accounts and Solvency (Form 8) every year.

  • File an Annual Return (Form 11) with the Registrar of Companies (ROC).

4. Auditor Appointment & Procedure

If an LLP is liable for an audit, it must appoint an auditor in the manner prescribed under the LLP Act.

  • The Designated Partners are responsible for appointing the auditor.

  • The auditor must be a practicing Chartered Accountant in India.

  • The appointment must be made each financial year.

If an LLP fails to appoint an auditor, the partners themselves will be deemed to have defaulted, and the LLP may face penalties.

5. Responsibilities of the Auditor

The auditor of an LLP has similar responsibilities as in a company audit. They are expected to:

  • Verify the accuracy of financial statements.

  • Review internal control systems and accounting policies.

  • Check compliance with provisions of the LLP Act, 2008.

  • Report any fraud, misstatement, or irregularities in financial records.

After the audit, the auditor issues an Audit Report to the partners, certifying that the accounts reflect a true and fair view.

6. LLP Audit Under the Income Tax Act

In addition to audit under the LLP Act, an LLP may also be required to get its accounts audited under the Income Tax Act, 1961.

Income Tax Audit Applicability for LLPs:

  • If turnover exceeds ₹1 crore (for businesses) or ₹50 lakh (for professionals).

  • If the LLP has opted for presumptive taxation under Section 44AD or 44ADA and declares income lower than the presumptive rate.

Thus, even if an LLP is below the audit threshold under the LLP Act, it might still require a tax audit if it crosses the prescribed limits under the Income Tax Act.

7. Filing Requirements for Audited LLPs

Once the audit is completed, the LLP must:

  • File Form 8 (Statement of Accounts & Solvency) within 30th October every year.

  • File Form 11 (Annual Return) by 30th May every year.

  • Ensure the financial statements are signed by designated partners and the auditor.

The audit report need not be attached while filing, but must be kept at the registered office for inspection when required by authorities.

8. Consequences of Non-Compliance

Failure to comply with audit requirements attracts heavy penalties under the LLP Act.

Penalty for not maintaining books or not filing Form 8:

  • Minimum fine: ₹25,000

  • Maximum fine: ₹5,00,000

Penalty for non-filing of Form 11:

  • ₹100 per day of delay, with no upper limit.

In case of repeated defaults, the MCA may deactivate the Designated Partner Identification Number (DPIN) or even initiate prosecution for persistent non-compliance.

9. Benefits of Conducting an LLP Audit (Even Voluntarily)

Even if not mandated, getting an LLP audit done can be beneficial.
Some key advantages include:

  • Enhanced Credibility: Audited financials inspire greater confidence among lenders, investors, and stakeholders.

  • Ease in Funding: Banks and NBFCs often ask for audited statements before approving loans.

  • Error Detection: Regular audit helps detect and correct accounting errors or irregularities early.

  • Compliance Readiness: Prepares the LLP for due diligence, valuation, or conversion into a private limited company.

  • Tax Planning: Auditors can suggest legitimate ways to optimize tax liabilities and claim deductions.

10. Practical Compliance Timeline for LLPs

Compliance Form Due Date Applicable to
Annual Return Form 11 30th May every year All LLPs
Statement of Accounts & Solvency Form 8 30th October every year All LLPs
Statutory Audit – Mandatory if turnover > ₹40 lakh or capital > ₹25 lakh LLPs crossing threshold
Income Tax Return ITR 5 31st July (Unaudited) / 31st October (Audited) All LLPs

11. Summary of Key Takeaways

Criteria Requirement Applicable Section
Turnover up to ₹40 lakh and Capital up to ₹25 lakh Audit not required Rule 24(8) of LLP Rules, 2009
Turnover above ₹40 lakh or Capital above ₹25 lakh Audit mandatory Rule 24(8) of LLP Rules, 2009
Tax Audit under Income Tax Act Turnover > ₹1 crore or Income < presumptive limit Section 44AB
Auditor Qualification Chartered Accountant in Practice LLP Act, 2008

The audit requirement for LLPs is a crucial compliance checkpoint under both the LLP Act and the Income Tax Act. While smaller LLPs may enjoy exemption, maintaining transparent and verified accounts is always advisable.

Regular audits not only ensure statutory compliance but also strengthen the business’s credibility, helping it grow sustainably and access funding with ease.

If your LLP is nearing the ₹40 lakh turnover or ₹25 lakh contribution mark, it’s best to consult a Chartered Accountant and initiate the audit process early to avoid last-minute penalties and MCA defaults.