Description
Partnership Firm Tax Return Filing
What is a Partnership firm?
A partnership firm is a type of entity where more than one person is carrying out business under one entity. Partnerships firms in India are of two types – Registered partnership firms and unregistered partnership firms.
Registering a Partnership is the right choice for small enterprises as the formation is straightforward, simple and there are minimal regulatory compliances.
The Partnership Act has been in existence in India since 1932, making partnerships one of the oldest types of business entities in India. A partnership firm can even be registered after it is formed. There are penalties for non Registration of a Partnership firm.
But unregistered Partnership firms are denied certain rights under section 69 of the Partnership Act that majorly deals with the effects of non Registration of Partnership firms.
The income tax defines a Partnership firm as “Persons who have entered into a partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”. Hence, a firm that does not have a registration certificate from the registrar is an unregistered Partnership firm.
The tax rate for a Partnership firm
What is the tax rate for a partnership firm?
A partnership firm is required to file a partnership firm income tax return under the Income Tax Act,1961. Partnership firms are liable to pay income tax at the rate of 30% of total income. Besides, a partnership firm is liable to pay an income tax surcharge of 12% if the total income exceeds Rs.1 crore.
Additional to the income tax and surcharge a partnership firm must pay the education cess.
Education Cess is applicable on the amount of the income tax and the applicable surcharge at the rate of 4% and the applicable surcharge at the rate of 1%.
Alternative minimum tax
Similar to a private limited company or LLP, partnership firms are also required to pay alternate minimum tax at the rate of 18.5% of “adjusted total income”. Alternate minimum tax would be increased by the applicable surcharge, education cess.
The income tax calculation for Partnership firms
What are the allowed deductions?
While calculating the payable income tax an individual must check the available deductible income
- Remunerations or interest paid to the partners of the firm is not under the terms of the partnership.
- Salaries, bonuses, remunerations, commissions paid to the non-working partners of the firm.
- If remuneration paid to partners is following the terms of the partnership deed but such transactions were made or were concerning anything that pre-dates the partnership deed.
How to File Tax Returns for a Partnership Firm?
For Partnership income tax return filing should be done through Form ITR-5. This form ITR-5 is used to partnership firm income tax returns and not the tax returns for the partners.
Like all other income tax forms, ITR 5 is an attachment-less form and there is no requirement to submit any documents or statements along with the partnership firm tax returns. However, the taxpayers must save the records about business and produce the same before the tax authorities when requested.
ITR-5 can be filed online with the income tax department’s online portal. The documents need to be submitted only when they are asked for. While filing the Partnership firm tax returns the partners must have class 2 digital signatures for verification of the filing process.
Procedure for filing Income tax returns of a partnership firm.
The income tax return of a partnership firm can be filed online through the income tax website or manually. If the income tax return is filed online then a class 2 digital signature will be required for the partner of the firm. Also, online income tax return filing is mandatory for partnership firms required to obtain an audit.
In case of manual filing, the assessee must print out one copy of Form ITR-V. The copy of ITR-V signed by the assessee has to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka).
We, only help the assesse in filing their partnership returns online.
Partnership Firm Tax Return Due Date
The due date for filing the partnership tax return filing is dependent on whether the firm is required to be audited or not. When the firm is not required to be audited the income tax returns should be filed by 31st July. When the firm is required to be audited then the firm has to file its income tax returns by 31stOctober.
However, the cost of compliance is lesser as compared to the companies. Unlike companies, partnerships need not conduct meetings or maintain a register. Hence, it should be noted non – compliance can be costlier than meeting compliances.
Audit Requirement for Partnership Firms
Partnership firms that satisfy any of the conditions below would be required to get accounts audited:
- Carrying on business and total sales exceed Rs.1 crore in the previous year.
- Carrying on a profession and gross receipts in profession exceed Rs.50 lakhs in any previous year.
- Besides, there are other conditions applicable that could make an audit mandatory for a partnership firm.
If a partnership firm entered into international transactions or specified domestic transactions a report must be furnished in Form No. 3CEB under section 92E. For partnership firms required to furnish Form 3CEB, the deadline for filing a tax return is 30th November.
Partnership Firms Tax Return Filing Plans
All Inclusive Pricing – No Hidden Fee
Income tax return filing, preparation of financial statements compliance management for a proprietorship firm with a turnover of less than Rs.10 lakhs per annum.
Income tax return filing, preparation of financial statements compliance management for a proprietorship firm with a turnover of less than Rs.50 lakhs per annum.
Income tax return filing, preparation of financial statements compliance management for a proprietorship firm with a turnover of less than Rs.100 lakhs per annum.
Assessment of Partners
- After the firm pays the tax, no tax will be payable by the partners on the share of income from the firm.
- Interest amount or remuneration etc. received by a partner will be taxed as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm being more than limits laid down in S. 40(b)
- The partner’s share (including a minor admitted for the benefit of the firm), in the income of the firm is not included in computing his total income i.e. his share in the total income of the firm shall be exempt from tax under section 10(2A) of the Act.
General questions
Partnership firms are not required to make an audited financial statement each year. The tax audit may be necessary based on the turnover and other criteria.
The partnership deed contains all the Terms and conditions of the Partnership. It regulates the rights and the duties of each partner making the partnership deed a very crucial document.
The compliance for partnership firms mainly includes the income tax return filing unlike the corporate entities like the LLP and the company as they have to make income tax return filings as well as the annual return filing.
Irrespective of the turnover and the profit or losses made by the partners, the partnership is required to file income tax returns.
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