ICAI Guidance Note explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A limited liability partnership has to keep accounts that give a true and fair view, but the LLP Act does not prescribe a layout for them. The ICAI Guidance Note on Financial Statements of Limited Liability Partnerships, August 2023 edition, fills the gap with recommended formats for the balance sheet and the statement of profit and loss. This guide describes the note, using its own heads, and arranges an invented LLP's ledger balances under them. The note is recommendatory guidance of ICAI, not law, and later changes should be checked on icai.org. Form 8, the statement of account and solvency, is a separate filing. Preparing both is part of our annual filing of LLP service.
The note is effective for financial statements covering periods beginning on or after 1 April 2024 and supersedes the earlier Technical Guide on LLP financial statements. It recommends a balance sheet with partners' funds (partners' capital account split into contribution and current account, and reserves and surplus), then non-current and current liabilities and assets, and a statement of profit and loss that shows partners' remuneration before tax. As printed, Accounting Standards for LLPs are yet to be notified by the Central Government, so LLPs apply the standards prescribed by ICAI for entities other than companies.
Who it applies to, and what it replaces
The note's Chapter I says an LLP is a body corporate separate from its partners, bound to keep annual accounts reflecting a true and fair view and to file a statement of account and solvency every year. It says that the Limited Liability Partnership (Amendment) Act, 2021 allows the Central Government to prescribe standards of accounting for LLPs, on the recommendation of ICAI, and that these are yet to be notified; meanwhile LLPs apply the standards prescribed by ICAI for entities other than companies. The August 2023 text sorts those entities into four levels, Level I to Level IV, with Levels II to IV treated as micro, small and medium sized entities with relaxations (Appendix A). ICAI's later revised criteria, effective for accounting periods commencing on or after 1 April 2024, group non-company entities into two categories, micro, small and medium sized entities (MSMEs) and Large entities, and say the old Level II, III and IV terms are read as MSME and Level I as Large (as printed in ICAI's August 2025 FAQ publication on the non-corporate entities note). The tests are in our classification guide; this article does not restate them. The effective date is printed at the end of the introduction: periods beginning on or after 1 April 2024.
The legal side is in our posts on section 34 of the LLP Act, section 34A on accounting and auditing standards, rule 24 of the LLP Rules; Form 8 is covered in the post linked below.
What the formats contain
| Part | Heads (described in our own words) | Points to note |
|---|---|---|
| General instructions | Formats apply to the balance sheet and statement of profit and loss; modify where an applicable standard requires; disclosures are in addition to the standards; comparatives for the preceding period, except in the first statements; rounding by size of total income | Cross-reference each face item to the notes |
| Part I, balance sheet | Partners' funds: partners' capital account (contribution and current account), reserves and surplus; non-current liabilities; current liabilities; non-current assets; current assets | "Partners' funds" is used in place of "equity" because some items may not strictly meet the definition of equity |
| Balance sheet instructions | Current and non-current tests (operating cycle, twelve months); trade receivables and payables; notes on partners' funds, reserves, borrowings, provisions and so on | For each partner's accounts, disclose opening balance, amounts introduced, remuneration, interest, withdrawals, share of profit or loss and closing balance |
| Part II, statement of profit and loss | Revenue from operations; other income; expenses; profit before partners' remuneration and tax; partners' remuneration; tax expense; discontinuing operations | Interest on partners' capital sits within finance cost |
| Profit and loss instructions | Classification of revenue, finance costs and other income; notes on employee benefits and on items above a stated size |
The note also covers the cash flow statement where applicable, following AS 3; for micro, small and medium sized entities (Levels II to IV in the note's wording) the cash flow statement need not be included, though they are encouraged to follow the standard.
Method
Split the partners' accounts into contribution and current account; put reserves under reserves and surplus (a debit balance of profit and loss shows as a negative figure); classify borrowings, assets and liabilities as current or non-current, with current maturities of long-term borrowings shown separately; then prepare the partners' account note and the statement of profit and loss with partners' remuneration after profit before remuneration and tax.
Worked example: Kaushik and Verma Consulting LLP
The entity and all figures in this example are invented for illustration.
The LLP has two partners, Kaushik and Verma, who have contributed 5,00,000 and 3,00,000. Interest on contributions is 10 per cent and each partner draws remuneration of 1,80,000 under the LLP agreement; profit is shared 60 and 40. The tax rate and tax computation are outside the example (see our income-tax guides).
Closing ledger balances classified under the Guidance Note heads.
| Ledger | Debit | Credit | Head in the format |
|---|---|---|---|
| Partners' contribution | 8,00,000 | Partners' funds: partners' capital account: contribution | |
| Partners' current accounts | 2,50,000 | Partners' funds: partners' capital account: current account | |
| General reserve | 1,50,000 | Partners' funds: reserves and surplus | |
| Term loan from bank, after current maturities | 3,00,000 | Non-current liabilities: long-term borrowings | |
| Deferred tax liability | 20,000 | Non-current liabilities: deferred tax liabilities (net) | |
| Bank overdraft | 1,50,000 | Current liabilities: short-term borrowings: loans repayable on demand from banks | |
| Current maturities of term loan | 1,00,000 | Current liabilities: short-term borrowings, shown separately | |
| Trade payables | 2,00,000 | Current liabilities: trade payables | |
| Income received in advance and interest accrued | 60,000 | Current liabilities: other current liabilities | |
| Provision for employee benefits and for tax | 70,000 | Current liabilities: short-term provisions | |
| Computers and office equipment (net) | 9,00,000 | Non-current assets: property, plant and equipment | |
| Investments held long term | 1,00,000 | Non-current assets: non-current investments | |
| Security deposits | 50,000 | Non-current assets: long-term loans and advances | |
| Trade receivables | 6,00,000 | Current assets: trade receivables | |
| Cash and bank balances | 3,00,000 | Current assets: cash and bank balances | |
| Advances to staff and suppliers | 1,00,000 | Current assets: short-term loans and advances | |
| Prepaid expenses | 50,000 | Current assets: other current assets | |
| Total | 21,00,000 | 21,00,000 |
Balance sheet in the Guidance Note layout.
| Partners' funds and liabilities | Amount | Assets | Amount |
|---|---|---|---|
| Partners' funds | Non-current assets | ||
| Partners' capital account: contribution | 8,00,000 | Property, plant and equipment | 9,00,000 |
| Partners' capital account: current account | 2,50,000 | Non-current investments | 1,00,000 |
| Reserves and surplus | 1,50,000 | Long-term loans and advances | 50,000 |
| 12,00,000 | 10,50,000 | ||
| Non-current liabilities | Current assets | ||
| Long-term borrowings | 3,00,000 | Trade receivables | 6,00,000 |
| Deferred tax liabilities (net) | 20,000 | Cash and bank balances | 3,00,000 |
| 3,20,000 | Short-term loans and advances | 1,00,000 | |
| Current liabilities | Other current assets | 50,000 | |
| Short-term borrowings (overdraft 1,50,000; current maturities 1,00,000) | 2,50,000 | 10,50,000 | |
| Trade payables | 2,00,000 | ||
| Other current liabilities | 60,000 | ||
| Short-term provisions | 70,000 | ||
| 5,80,000 | |||
| Total | 21,00,000 | Total | 21,00,000 |
Statement of profit and loss for the year.
| Particulars | Amount |
|---|---|
| Revenue from operations (consulting fees) | 30,00,000 |
| Other income | 40,000 |
| Total income | 30,40,000 |
| Employee benefits expense | 14,00,000 |
| Depreciation | 1,40,000 |
| Finance cost: interest 60,000 and interest on partners' capital 80,000 | 1,40,000 |
| Other expenses | 6,50,000 |
| Total expenses | 23,30,000 |
| Profit before partners' remuneration and tax (30,40,000 - 23,30,000) | 7,10,000 |
| Partners' remuneration | 3,60,000 |
| Profit before tax | 3,50,000 |
| Tax expense: current 80,000 and deferred 10,000 | 90,000 |
| Profit for the period | 2,60,000 |
Partners' current account note (opening balance, remuneration, interest, share of profit, withdrawals, closing).
| Item | Kaushik | Verma | Total |
|---|---|---|---|
| Opening balance | 40,000 | 25,000 | 65,000 |
| Remuneration | 1,80,000 | 1,80,000 | 3,60,000 |
| Interest on contribution (10%) | 50,000 | 30,000 | 80,000 |
| Share of profit (60 : 40 of 2,60,000) | 1,56,000 | 1,04,000 | 2,60,000 |
| Withdrawals | (2,76,000) | (2,39,000) | (5,15,000) |
| Closing balance | 1,50,000 | 1,00,000 | 2,50,000 |
Check. Ledger balances total 21,00,000 on both sides. Balance sheet: partners' funds 12,00,000 + non-current liabilities 3,20,000 + current liabilities 5,80,000 = 21,00,000 = non-current assets 10,50,000 + current assets 10,50,000. The partner schedule agrees with the statement of profit and loss (remuneration 3,60,000; interest 80,000; profit 2,60,000) and with the current account balance of 2,50,000 in the balance sheet.
Common mistakes
- Showing partners' remuneration inside employee costs instead of after profit before remuneration and tax.
- Showing interest on partners' capital under other expenses rather than finance cost.
- Treating the note as binding law, or forgetting that Form 8 is a separate filing.
Need help with LLP accounts and filing?
If you need your LLP's accounts arranged in these formats and the Form 8 and annual return filed, our team can do both from your ledgers. See our annual filing of LLP service and send us the trial balance and the LLP agreement.
Key takeaways
- The note is recommendatory, effective for periods beginning on or after 1 April 2024.
- Partners' funds replace equity: contribution, current account, reserves and surplus.
- Partners' remuneration appears after profit before remuneration and tax.
- Each partner's account is disclosed with opening balance, movements and closing balance.
- Form 8 is a separate filing.
Read next
- ICAI Guidance Note on Financial Statements of Non-Corporate Entities
- Accounting Standards in India: the list from AS 1 to AS 29
- Form 8: statement of account and solvency
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.