Operating a Partnership Firm in India involves a range of crucial financial and legal responsibilities. It is imperative to adhere to various tax and regulatory requirements to ensure the smooth functioning and growth of your business. These obligations encompass filing Income Tax Returns, TDS Returns, GST Returns, EPF Returns, and occasionally undergoing a Tax Audit.

The submission of tax returns is a fundamental responsibility for Partnership Firms in India. At IndiaFilings, we recognize the importance of complying with Indian tax laws and the potential advantages associated with it. Our comprehensive services are meticulously crafted to aid business proprietors in navigating the intricate landscape of compliance. To simplify these compliance duties, IndiaFilings offers expert guidance, streamlining the process and eliminating hassles for business owners.

By partnering with us, you can ensure compliance with income tax on partnership firms and explore opportunities to optimize your tax benefits, enabling your business to thrive while adhering to tax regulations.

Partnership Firm

A partnership firm is a business entity formed by two or more individuals working together under a single enterprise. There are two main categories of partnership firms:

• Registered Partnership Firm: A registered partnership firm is one that has undergone formal registration with the RoC and has received a registration certificate as evidence of its legal existence.
• Unregistered Partnership Firm: Any partnership that lacks a registration certificate from the Registrar of Firms is referred to as an unregistered partnership.

Partnership, in essence, is an agreement entered into by two or more persons who have mutually consented to share the profits or losses arising from a jointly conducted business. The individuals involved in a partnership arrangement are individually known as partners and collectively referred to as a firm. Partners need to be aware of the partnership firm tax rate and how it affects the distribution of profits. Partners are responsible for maximizing firm advantage, fair dealings, and maintaining accurate records with full transparency for all partners’ benefit.

Income Tax Return filing for Partnership Firm

Every partnership firm in India is obligated to file income tax returns annually, regardless of whether the firm has generated income or incurred losses during the financial year. Understanding the partnership firm tax rate (30%) is crucial for making informed financial decisions within the business. Even if there was no business activity and the partnership firm’s income is zero (NIL), filing an NIL income tax return within the stipulated due date is still mandatory.

Partnership Firm Tax slabs / LLP for AY 2023-24

Under the provisions of the Income Tax Act 1961, a partnership firm in India is subject to the following tax percentages:

• Partnership firm tax rate: Partnership firms are liable to pay income tax at a rate of 30% on their taxable income.
• Surcharges: If the taxable income of the partnership firm exceeds one crore rupees, a surcharge of 12% is applicable in addition to the income tax.
• Interest on Capital: Partnership firms can claim a deduction of up to 12% on the interest paid on capital.
• Health and Education Cess: A 4% Health and Education Cess is levied on the total tax amount, including surcharges.
• Marginal Relief : In case Net Income exceeds 1 crore, the amount payable as income tax and Surcharge shall not exceed the total amount payable as income tax on Total Income of Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.

Minimum Alternate Tax for Partnership Firms

Similar to income tax applicable for a company, partnership firms are subject to minimum alternate Tax. A minimum alternate tax of 18.5% of adjusted total income is applicable. Hence, income tax payable by a partnership firm’s profits cannot be less than 18.5 percent (increased by income tax surcharge, education cess, and secondary and higher education cess).

Deductions Allowed

When computing the liability of income tax on partnership firm, deductions are permitted for the following:

• Remunerations or interest paid to partners that do not conform to the terms of the partnership agreement.
• Salaries, bonuses, remunerations, and commissions are paid to non-working partners of the firm.
• If remuneration paid to partners complies with the partnership deed but relates to transactions that pre-date the partnership deed.

ITR Forms for a Partnership Firm

Partnership Firms can file their ITR for income tax on partnership firms through Form ITR-4 or ITR-5.

ITR-4

ITR-4 is to be filed by those partnership firms which are a Total Income of up to 50 lakh and have income from Business and Profession, which is computed under presumptive basis.

ITR-5

ITR-5 is to be filed by those partnership firms who are required to get their account audited.

Deadline for Partnership Firm Tax Filing

The deadline for filing ITR for a partnership firm depends on whether an audit is required:

• If the firm is not subject to an audit, returns must be filed by 31st July.
• If an audit is necessary, the firm must file its returns by 31st October.

Filing of GST Returns

Every GST-registered person is required to file GST Returns, and every partnership firm is required to be under GST if its aggregate annual turnover exceeds Rs. 20 lacs. Usually, the GST-registered partnership firms have to file GSTR-1, GSTR-3B, and GSTR-9 returns. If the firm has opted for a composition scheme, then GSTR-4 is to be filed.

TDS Return

The TDS Return is to be filed where the partnership firm has a valid TAN, and the type of return to be filed depends upon the purpose of deduction. The types of TDS Return are:

• Form 24Q – TDS on Salary
• Form 27Q – TDS where the deductee is a non-resident, foreign company
• Form 26QB – TDS on payment for transfer of immovable property
• Form 26Q – TDS in any other case

EPF Return filing

The partnership firm is required to get EPF registration if it employs more than ten persons, and accordingly, filing of EPF return becomes mandatory.

Accounting and bookkeeping

Books of account are required to be maintained if the partnership firm’s sale/turnover/gross receipts from the business is more than Rs. 25,00,000 or the income from the business is more than Rs. 2,50,000 in any of the three preceding years.

Tax Audit

A partnership firm is required to have a tax audit carried out if the sales, turnover, or gross receipts of business exceed Rs. 1 crore in the financial year. However, it may be required to get its account audited in certain other circumstances.