Chapter XVII - Special Provisions Relating to Certain Persons
Section 331
Section 331: liability of partners of an LLP in liquidation
Section 331 addresses specified tax dues that cannot be recovered from an LLP, or another person in respect of income of a year when it was an LLP. Relevant-year partners face joint and several liability unless they prove the stated non-recovery defence.
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Need advice on Section 331?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Irrespective of anything contained in the Limited Liability Partnership Act, 2008, where any tax including penalty, interest, fee or any other sum payable under the Act is due and cannot be recovered from––
(a) the limited liability partnership in respect of any income of any tax year; or
(b) any other person in respect of any income of any tax year during which such other person was a limited liability partnership, then, in such case, every such person who was a partner of such limited liability partnership at any time during the relevant tax year, shall be jointly and severally liable for the payment of such tax due unless he proves 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 limited liability partnership.
Introduction
The operative conditions concern the specified entity, the relevant tax year, non-recovery and each partner’s statutory defence. Apply those conditions to the particular demand and partnership history.
The partner’s period of involvement and the statutory defence must be considered before fixing personal liability.
Key takeaways
Unrecovered LLP dues are the trigger
The rule applies where tax, penalty, interest, fees or another Act sum cannot be recovered from an LLP or from an entity for a year when it was an LLP.
Relevant-year partners can be jointly liable
A person who was an LLP partner at any time during that tax year can be jointly and severally liable.
A specific defence is available
A partner avoids liability by proving that non-recovery was not attributable to their own gross neglect, misfeasance or breach of duty in the LLP's affairs.
How recovery moves to partners
First identify the tax-year income and the tax, penalty, interest, fee or other sum due under the Act. Section 331 operates if that sum cannot be recovered from the LLP, or from another person in respect of income of a tax year during which that person was an LLP.
Every person who was a partner at any time during the relevant tax year is then jointly and severally liable. Present LLP status alone does not decide whether a former partner falls within this rule.
Partner's statutory defence and evidence
The partner must prove that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on their part in relation to the LLP's affairs. Resignation or the LLP Act's ordinary limited-liability rule does not by itself establish this defence.
For a practical review, align partnership dates, the relevant tax year, recovery correspondence and records of the partner's duties and conduct. This evidence checklist does not add a statutory condition.
When this provision applies
Identify the income tax year and the sum due, including the listed penalty, interest, fee or other Act sum. The rule can concern an LLP or another person in respect of income of a year during which that person was an LLP.
Next establish that recovery from the entity cannot be made and identify everyone who was a partner at any time during the relevant tax year. Current membership alone does not define the statutory group.
Limits and procedural safeguards
Joint and several liability is not expressed as limited to a partner’s profit-sharing percentage. Equally, the section contains the specific defence that must be examined for each partner.
The defence concerns whether non-recovery can be attributed to that partner’s gross neglect, misfeasance or breach of duty in the LLP’s affairs. Merely pointing to resignation, a small profit share or the ordinary LLP limited-liability rule does not prove that defence.
Step-by-step review
1. Match the demand and entity history to the relevant income tax year.
2. Review the record showing that the sum cannot be recovered from the entity.
3. Establish each person’s partnership dates during that year.
4. Assess and document the partner-specific statutory defence and respond to the liability proceeding.
Hypothetical example
Hypothetical illustration: a person was an LLP partner for part of the relevant tax year and resigned before the later recovery demand. Resignation alone does not exclude that person from the “at any time” wording. The recovery condition and the partner’s statutory defence still require a fact-specific review.
Records to prepare
Entity history, relevant-year demand and recovery records.
Partner admission and cessation records.
Contemporaneous duty, decision and conduct records supporting the partner-specific defence.
Official amended Act source
Step-by-step flow for applying Section 331
- 1
Is tax, penalty, interest, fee or other sum due under the Act for a tax year?
The sum must relate to income of a tax year of a limited liability partnership (LLP), or of a person who was an LLP during that tax year.
- 2
Can the sum be recovered from the LLP (or that other person)?
- Yes, it can be recovered: Section 331 is not triggered; recovery is made from the LLP.
- No, it cannot be recovered: Go to the next step.
- 3
Who was a partner of the LLP at any time during the relevant tax year?
Every such person is covered. The liability applies irrespective of anything in the Limited Liability Partnership Act, 2008.
- 4
Can the partner prove that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on their part in relation to the LLP's affairs?
The burden of proof is on the partner.
- Yes, the partner proves it: That partner is not liable under Section 331.
- No: The partner is jointly and severally liable for the tax due, along with the other partners who cannot prove it.
Practical checklist
Do
- Keep evidence of the LLP’s liquidation, demands and recoverability.
- If contesting partner liability, assemble records relevant to the statutory defence.
- Entity history, relevant-year demand and recovery records.
- Partner admission and cessation records.
- Contemporaneous duty, decision and conduct records supporting the partner-specific defence.
Avoid
- Assume every LLP partner is personally liable for every demand regardless of the section’s conditions.
Illustrative example
Worked example: an LLP in liquidation that cannot pay
Hypothetical facts (illustration only, not a real taxpayer): An LLP had three partners, P, Q and R, throughout a tax year. Tax and interest of an assumed ₹12,00,000 was later determined for that year. The LLP went into liquidation, and only an assumed ₹4,00,000 could be recovered from it. P managed the finances; Q and R were not involved in day-to-day affairs.
Unrecovered amount
₹12,00,000 − ₹4,00,000 = ₹8,00,000 cannot be recovered from the LLP.
Persons covered
P, Q and R were partners during the relevant tax year, so each is within Section 331, despite the LLP Act.
The defence
Each partner can escape only by proving that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on their own part. Assume Q and R produce records showing they had no role in the decisions that led to the default; P cannot.
Result on the assumed facts
If Q and R discharge the burden, only P remains liable for the ₹8,00,000. If they do not, all three are jointly and severally liable for it.
Outcome
- The ₹8,00,000 (assumed) is recoverable from each partner who fails to prove the Section 331 defence.
- Whether a partner has proved the defence depends on the facts and evidence; Section 331 does not limit liability to a profit-sharing ratio.
Glossary
- Relevant-year partner
- A person who was a partner at any time during the tax year to which the specified income and dues relate.
- Non-recovery defence
- The partner’s proof that the non-recovery is not attributable to the stated fault on that partner’s part.
Frequently asked questions
Does an LLP's limited liability protect its partners from unpaid tax dues?
Not automatically. Section 331 overrides the Limited Liability Partnership Act, 2008 in this context - if the LLP's tax dues cannot be recovered from it, a relevant-year partner is jointly and severally liable unless they prove non-recovery was not attributable to their own gross neglect, misfeasance or breach of duty.
How can a partner avoid this liability?
By proving that non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on that partner’s part in relation to the LLP’s affairs.
Is exposure automatically limited to the profit-sharing percentage?
The section states joint and several liability, subject to its conditions and the partner-specific defence, rather than a profit-share cap.
Does resignation before the demand automatically remove the partner from scope?
No. The wording concerns partnership at any time during the relevant tax year.
Need help applying this provision to your situation?
Discuss LLP partner tax liability with our tax teamLast updated 10 October 2026