by 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 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 as such no 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.
For the purpose of filing tax returns for a partnership firm, one must use the Form ITR-5. The form ITR-5 is used to file tax returns for the partnership firm itself and not for the partners of the firm. One must not confuse form ITR-5 and ITR-3. Similar to all other income tax return filings, ITR-5 can be filed online via the income tax departments online portal.
Also, it needs to be noted that while filing these returns, one does not need to attach any supporting documents along with it. These documents need to be submitted to the Income Tax Department only if they are specifically asked for.
It is compulsory for a firm to file income tax return electronically with or without digital signature. The firm can also file income tax return under Electronic Verification Code. However, a partnership firm is compelled to do e-filing of its income tax returns when the partnership firm is required to get an audit. While filing the income tax returns, the partners must have a class 3 digital signature for verification of the filing process.
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 crores.
Additional to the income tax and surcharge a partnership firm must pay the education cess and the secondary higher education cess.
Education Cess is applicable on the amount of the income tax and the applicable surcharge at the rate of 2%. Secondary and higher education cess is applicable on the amount of the income tax 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, and secondary and higher education cess.
Allowed deductibles
While calculating the payable income tax an individual must check the available deductible income
- Salaries, bonuses, remunerations, commissions paid to the non-working partners of the firm.
- Remunerations or interest paid to the partners of the firm is not under the terms of the partnership.
- 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.
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.
The deadline for filing an income tax for a partnership firm is dependent upon whether the firm is required to be audited or not. The deadlines for filing income tax return are as follows:
Where the firm is not required to be audited: The income tax returns must be filed by 31st July.
Where the firm is required to be audited: The firm has to file its income tax returns by 31st October
