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Partnership Tax Filing

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What is Partnership Tax Return Filing?

When business is conducted with more than one person’s ownership, or a body of persons, it is called a partnership.

In India we have two types of partnership firms

  • Registered partnership firms - registered with the Registrar of Firms and having a certificate
  • Unregistered partnership firms - not registered with the Registrar of Firms

Since the Partnership Act has been in existence before Independence (1932), it is one of the most popular ways of doing business in India

Taxability & Deductions of Partnership Firms

For the purposes of taxation, the partnership firm and the partners are treated as separate legal entities.

Further, certain deductibles are also allowed

  1. Remuneration of interest paid to a partner outside of the partnership deed.
  2. Salaries, bonuses, commissions, remunerations paid to the non-working partners of the firm.
  3. If remuneration paid to any partner is part of the partnership deed, but such payment pre-dates mention in the partnership deed.

Which ITR is applicable to Partnership Firms?

Typically Partnership Firms need to fill ITR 5 to file their income tax returns. Do note, the ITR 5 is to file the returns of the Partnership firm and not the partners.

The partnership does not need to submit and supporting documents when filing an ITR 5. Needless to say records need to be maintained as furnished if requested by the department at some point in the future.

While filing returns the Firm can undertake Electronic Verification Code for verification purposes. However, in the case of an Audit requirement, verification needs to be undertaken using the class 3 digital signature.

If a partnership firm’s income through business is less than Rs. 2 crores or income through profession is less than Rs. 50 lakhs, it can even opt for an ITR 4 for tax filing purposes under the presumptive taxation scheme.

What Slab rates are applicable to Partnership Firms?

Net Income Level Tax Rate
Net Income less than Rs. 1 crore 30% on net income
Net Income more than Rs. 1 crore 30% on net income + 12% surcharge
Health and education cess 4% on income tax and surcharge (if any)

Additionally, if the normal tax liability is less than 18.5% of book profits, a partnership firm needs to pay an Alternate Minimum Tax of 18.5% plus surcharge and health and education cess as applicable.

Audit Requirements

A partnership firm may be required to get audited under the following circumstances:

  1. If the partnership, running a business, has total income from sales exceed Rs. 1 crore in a financial year.
  2. If the partnership, running a profession, has total income from gross receipts exceed Rs. 50 lakhs in a financial year.
  3. Certain other conditions require a partnership firm to get an audit.

Due Dates

Particulars Timeline
If Audit is not required 31st July
If Audit is required 30th September

Documents required

  1. PAN Card Details and Address of the partnership firm
  2. Partnership Deed of the firm
  3. Bank Statements of the financial year for which returns are to be filed
  4. Copy of Aadhar and PAN of the Partners of the firm
  5. Relevant email id and mobile number.
  6. Profit and Loss Statement & Balance Sheet.
  7. GSTR 3B and GSTR 1 for the relevant financial year, if GST registered.
  8. Form 26AS details.

FAQs

  1. What are the annual compliances for a partnership firm?
  2. Can a partnership be transferred?
  3. Can I convert my partnership firm into an LLP or Private Limited Company?

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What is Partnership Tax Return Filing?

When business is conducted with more than one person’s ownership, or a body of persons, it is called a partnership.

In India we have two types of partnership firms

  • Registered partnership firms - registered with the Registrar of Firms and having a certificate
  • Unregistered partnership firms - not registered with the Registrar of Firms

Since the Partnership Act has been in existence before Independence (1932), it is one of the most popular ways of doing business in India

Taxability & Deductions of Partnership Firms

For the purposes of taxation, the partnership firm and the partners are treated as separate legal entities.

Further, certain deductibles are also allowed

  1. Remuneration of interest paid to a partner outside of the partnership deed.
  2. Salaries, bonuses, commissions, remunerations paid to the non-working partners of the firm.
  3. If remuneration paid to any partner is part of the partnership deed, but such payment pre-dates mention in the partnership deed.

Which ITR is applicable to Partnership Firms?

Typically Partnership Firms need to fill ITR 5 to file their income tax returns. Do note, the ITR 5 is to file the returns of the Partnership firm and not the partners.

The partnership does not need to submit and supporting documents when filing an ITR 5. Needless to say records need to be maintained as furnished if requested by the department at some point in the future.

While filing returns the Firm can undertake Electronic Verification Code for verification purposes. However, in the case of an Audit requirement, verification needs to be undertaken using the class 3 digital signature.

If a partnership firm’s income through business is less than Rs. 2 crores or income through profession is less than Rs. 50 lakhs, it can even opt for an ITR 4 for tax filing purposes under the presumptive taxation scheme.

What Slab rates are applicable to Partnership Firms?

Net Income Level Tax Rate
Net Income less than Rs. 1 crore 30% on net income
Net Income more than Rs. 1 crore 30% on net income + 12% surcharge
Health and education cess 4% on income tax and surcharge (if any)

Additionally, if the normal tax liability is less than 18.5% of book profits, a partnership firm needs to pay an Alternate Minimum Tax of 18.5% plus surcharge and health and education cess as applicable.

Audit Requirements

A partnership firm may be required to get audited under the following circumstances:

  1. If the partnership, running a business, has total income from sales exceed Rs. 1 crore in a financial year.
  2. If the partnership, running a profession, has total income from gross receipts exceed Rs. 50 lakhs in a financial year.
  3. Certain other conditions require a partnership firm to get an audit.

Due Dates

Particulars Timeline
If Audit is not required 31st July
If Audit is required 30th September

Documents required

  1. PAN Card Details and Address of the partnership firm
  2. Partnership Deed of the firm
  3. Bank Statements of the financial year for which returns are to be filed
  4. Copy of Aadhar and PAN of the Partners of the firm
  5. Relevant email id and mobile number.
  6. Profit and Loss Statement & Balance Sheet.
  7. GSTR 3B and GSTR 1 for the relevant financial year, if GST registered.
  8. Form 26AS details.

FAQs

  1. What are the annual compliances for a partnership firm?
  2. Can a partnership be transferred?
  3. Can I convert my partnership firm into an LLP or Private Limited Company?