Annual Compliance - Partnership Firm

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Annual Compliance - Partnership Firm

  • GST Return Filing
  • Income Tax Return Filing
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Partnership Firm Tax Return Filing

Introduction to Partnership Firms and Taxation:

Partnership firm is a type of business structure in which two or more individuals come together to start a business and share the profits or losses. In a partnership firm, each partner contributes capital, skills, and labor towards the growth of the business. Partnership firms are governed by the Indian Partnership Act, 1932.

Taxation of partnership firms is different from other business structures like proprietorship and company. Partnership firms are considered as separate entities for taxation purposes, but the partners are taxed on their share of profits. The partnership firm is required to file income tax returns annually and disclose all its income, expenses, and profits earned during the financial year.

The partnership firm is taxed at a flat rate of 30% on its total income, which includes profits and gains from the business. However, partners are taxed on their share of profits at the individual tax rates applicable to them. The partnership firm is also required to pay advance tax, which is a tax paid in advance during the financial year, based on estimated income.

Partnership firms are also eligible for certain tax deductions and exemptions under the Income Tax Act, such as deduction for capital expenditure, deduction for expenses incurred for scientific research, and exemption for income from agricultural operations.

process of filing income tax returns for a partnership firm.:

  1. Determine the Type of Tax Return: The first step is to determine the type of tax return applicable to the partnership firm. Partnership firms are required to file their income tax returns using either Form ITR-3 or ITR-5, depending on their turnover, profits, and other factors.

  2. Check Eligibility Criteria: The next step is to check the eligibility criteria for filing the tax return. Partnership firms with a turnover exceeding Rs. 2 crores or a profit of more than Rs. 50 lakhs are required to get their tax audit done before filing the return.

  3. Gather Required Documents: The partnership firm needs to gather all the relevant documents required for filing the tax return. These documents include the Profit and Loss Account, Balance Sheet, Tax Audit Report, bank statements, and other financial records.

  4. File the Return: The partnership firm can file its tax return online or offline. Online filing is done through the Income Tax Department’s website, while offline filing involves submitting a physical copy of the tax return to the concerned Income Tax office.

  5. Verify the Return: After filing the return, the partnership firm needs to verify it within 120 days. The verification can be done through various modes like Aadhaar OTP, Net Banking, or by sending a physical copy of the ITR-V to the Income Tax Department.

  6. Ensure Accuracy: The partnership firm needs to ensure that the information provided in the tax return is accurate and complete. Any errors or discrepancies in the tax return can result in penalties and legal consequences.

tax rate for a Partnership firm:
The tax rate for a partnership firm in India is a flat rate of 30% on the total income earned by the firm during the financial year, which includes profits and gains from the business. However, the partners are not taxed at this rate, instead, they are taxed on their share of profits at their applicable individual tax rates.
tax rate for a Partnership firm:
The tax rate for a partnership firm in India is a flat rate of 30% on the total income earned by the firm during the financial year, which includes profits and gains from the business. However, the partners are not taxed at this rate, instead, they are taxed on their share of profits at their applicable individual tax rates.
the process of calculating income tax for partnership firms in India:

To calculate the income tax liability of a partnership firm, the following steps need to be followed:

  1. Calculate the Total Income: The first step is to calculate the total income earned by the partnership firm during the financial year. This includes all profits and gains earned from the business, as well as any other income earned by the firm.

  2. Apply Tax Rate: Once the total income is calculated, the flat tax rate of 30% is applied to the total income earned by the partnership firm during the financial year.

  3. Calculate Tax Payable: The next step is to calculate the tax payable by the partnership firm by multiplying the total income with the applicable tax rate.

  4. Calculate Advance Tax: The partnership firm is also required to pay advance tax during the financial year, based on its estimated income. The advance tax is calculated as a percentage of the estimated income and needs to be paid in instalments throughout the year.

  5. Deduct Tax Credits: The partnership firm can also deduct tax credits, such as TDS (Tax Deducted at Source), MAT (Minimum Alternate Tax), and foreign tax credit, from its tax liability.

  6. Calculate Final Tax Liability: Finally, the partnership firm needs to calculate its final tax liability by deducting the tax credits from the tax payable. If the final tax liability is higher than the advance tax paid, the partnership firm needs to pay the balance amount. If the final tax liability is lower than the advance tax paid, the partnership firm is eligible for a refund.

Audit Requirement and due date for Partnership Firms

Partnership firms in India are required to get their accounts audited if their turnover exceeds Rs. 2 crores or if their profits exceed Rs. 50 lakhs. The due date for filing the tax return for partnership firms is usually July 31st of the assessment year, but it can be extended if the accounts are audited.

 

Annual Compliance – Partnership Firm FAQ’s:

Do Partnership firms need to undergo auditing? 

Partnership firms are not required to prepare audited financial statements every year. However, tax audits may be necessary based on turnover and other criteria.

What are the compliance requirements for Partnership firms? 

For partnership firms, compliance mainly includes filing income tax returns, unlike LLPs and companies, which must file income tax and annual returns.

What documents are required for Partnership firm tax return filing? 

To file the tax returns of a partnership firm, invoices of sales and purchases, expense invoices, bank statements of partners, TDS return copies, and GST return filing copies are required.

What is the significance of a Partnership deed? 

A partnership deed contains the terms and conditions of the partnership, regulating the rights and duties of each partner, making it a crucial document.

Is a Partnership firm considered a separate legal entity?

Partnership firms and their partners are considered the same entity. The liability of the partners is unlimited, and all partners are jointly responsible for the firm’s liabilities.

Is it mandatory for Partnership firms to file income tax returns?

Regardless of turnover or profit/loss, Partnership firms are required to file income tax returns.

Can a partnership deed be transferred? 

A partner cannot transfer a partnership without the consent of all partners.

Can a partnership firm be converted into an LLP or a company? 

Yes, a partnership firm can be converted into an LLP or a company, but the conversion process is cumbersome. It is advisable to start an LLP or a company instead of opting for a partnership.