An organization is referred to as a partnership firm when multiple owners operate it under one legal name. According to the Income Tax Act, individuals who have formed a partnership with mutual agreement are referred to as “partners” individually and “a firm” collectively. Since partnership firms are easy to organize and have few legal compliance requirements, small businesses often prefer these as their business structures.
A partnership firm is formed when a group of people work together to conduct business as a single business activity. Partnership firms can either be registered or unregistered. If a partnership firm that has received a registration certificate and has been registered with the Registrar of Firms, it is said to be a registered partnership firm. Unregistered partnership firms do not have a registration certificate from the Registrar of Firms. You might be interested in learning how to submit your partnership company tax return if you are a business partner in an Indian corporation. This article clarifies the required online filing process for partnership firm tax returns.
What does the term "Partnership Firm" mean?
A type of corporation where numerous people collaborate to run a business is a partnership firm. Given how easy it is to create a partnership and how few regulations and compliances are mandatory for it, small firms might want to give it some thought.
Partnership Firms are established according to the Partnership Act, 1932, which makes them one of the oldest business structures in India. A partnership business may be registered even after it has been formed. The failure to register a partnership business now has no repercussions, as the requirement for registration isn’t mandatory, but optional under the act.
On the other hand, under Section 69 of the Partnership Act, which largely deals with the repercussions of non-registration, unregistered Partnership businesses are denied a number of privileges over registered partnership firms in India. As a result, we always recommend that you register your partnership firms immediately after its formation.
What are the tax regulations for Partnership Firms?
According to the Income Tax Act of 1961, a partnership firm is subject to the following tax rates:
- 30% of your overall income is taxed.
- Whenever taxable income exceeds one crore, there is a 12% surcharge.
- The interest earned will be increased by 12%.
- A 4% tax cessation, including surcharges, is applied to health and education.
- It’s critical to understand that, in contrast to proprietorship businesses, a partnership business has a separate legal identity from its partners.
- A partnership business is also required to pay an alternative minimum tax (AMT) at a rate of 18.5% of its adjusted total revenue, exactly like private limited corporations and LLPs.
What deductions are permitted for filing a Partnership Firm's tax returns?
The following deductions must be considered when determining your income tax:
- Payments of interest or compensation made to partners of a partnership business that do not follow the partnership’s rules
- The non-working partners of the company receive wages, commissions, bonuses, and other compensation.
- If the partners’ compensation has been paid in accordance with the partnership agreement, but the transactions involving the compensation date back farther than the partnership agreement.
How to file tax returns for a Partnership Firm?
To file tax returns for a partnership firm, you must fill out form ITR-5. This form should only be used to file tax returns for the partnership firm and not for the firm’s partners. The ITR-5 can be submitted electronically through the income tax department’s website, much like other income tax returns. It is typically not necessary to include any kind of supporting documentation with the return filing form. The income tax division must receive any documents that are specifically requested.
All partnership firms are required to file income taxes, whether manually or digitally. It is possible to verify an organization’s income tax with or without the use of a digital signature or an electronic verification code (EVC). A partnership firm must file its income tax returns electronically when it must undergo an audit (ITR). All partners must possess a Class 3 digital signature certificate (DSC) for the ITR filing in order to verify the filing process.
The assessee must print two copies of Form ITR-5 if the company wishes to manually file income tax returns. The assessee must sign one copy of the ITR-5 and must save the second copy of the ITR-V form for their records.
Audit Requirements for Partnership Firms
Partnership businesses that satisfy any of the following requirements must have their financial records audited if:
- In the previous financial year, continued business activities, and overall revenues surpassed Rs. 1 crore.
- Partners having a career and earning more than Rs. Fifty lakhs in the such profession in any previous year.
- A partnership business may also be necessary to conduct an audit due to extra factors.
- If a partnership firm participates in international or certain specific domestic activities, a report in the Form 3CEB must be filed under Section 92E. Form 3CEB-requires partnership firms to file their tax returns till November 30th every financial year.
Tax Assessment of Partners
Once the partnership firm has paid its taxes for a particular financial year, the partners will not be required to pay any further taxes from their share of the firm’s profits. Amount of interest and/or remuneration, etc. received by a partner will be taxed in his hands as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm being in excess of limits laid down in Section 40(b) and from A.Y. 2004-05 amount disallowed in the event of any failure as mentioned in Section 144 or non compliance of Section 184.
What is the deadline for filing tax returns of the partners?
There are distinct deadlines for filing income tax returns for partnership firms that are mandated for audit and those that are not mandated for audit. The following are the deadlines:
- The income tax returns must be filed by July 31st if the partnership is not obliged to undergo an audit.
- The income tax returns must be filed by October 31 if the partnership must undergo an audit.
It could be difficult to file income tax returns for a partnership firm. Additionally, filing tax returns incorrectly or improperly could result in severe fines and penalties for the firm. In order to accurately calculate the company's income tax and file the return in a timely and hassle-free way, you must get in touch with SetIndiaBiz professionals who will guide you throughout in an effective manner.