Income Tax Return Filing of Partnership Firm

A partnership firm is a firm where one or more individuals carry out a business under the name of a single entity. In India, there are two types of partnership firms: a registered partnership firm and an unregistered partnership firm.

The best option for small enterprises is to register itself as the regulatory conditions are minimum and the formation of a partnership firm does not have any complications. Partnership Firms are the oldest type of business in India as they continue since the launch of the Partnership Act in 1932. It is possible to register a partnership after it has been formed. Also, no penalties are levied if the partnership firm is unregistered.

However, a partnership firm that is unregistered are unable to avail certain rights under Section 69 of the Partnership Act. This section mainly deals with the non-registration of the partnership firms.

Tax rates for a Partnership Firm

An income tax return (ITR) needs to be filed by a partnership firm under the Income Tax Act which was launched in 1961. Every partnership firm has to pay an income tax at the rate or 30% of the total income. And, it has to pay an income tax surcharge in case the total income is more than Rs. 1 Crore at the rate of 12%.

A partnership also has to pay an education cess and a secondary higher education cess in addition to the income tax and income tax surcharge. Education cess is applied on the total income tax and on the surcharge at a rate of 2%. Whereas, the secondary higher education cess is applied on the income tax amount and the applied surcharge at the rate of 1%.

A partnership firm also has to pay an alternate minimum tax just like a private limited company or a limited liability partnership. This alternate minimum tax is paid at the rate of 18.5% of the “total adjusted income.” Education cess, Secondary higher education cess and the applied surcharge are some of the factors that are responsible for an increase in the value of Alternate Minimum Tax.

Allowed Deductions while performing Partnership Firm ITR Filing

In order to calculate the income tax liable for payment while performing Partnership firm ITR filing, the amount liable for deductions must be checked.

• Under the terms of the partnership, remunerations and the amount of interest paid to the partners is not mentioned
• Bonuses, salaries, remunerations and commissions are paid to those partners of the firm who are non-working
• In case, the remunerations that are paid to the partners are satisfying the terms of the partnership deed but these transactions are done before the partnership deed.

Process for Partnership Firm ITR Filing

ITR-5 is used for partnership firm ITR filing. This form is used for partnership firm ITR filing and not filing returns of partners. ITR-5 form is just like any other income tax form. It is an attachment less form this means that there is no need to submit or attach any type of document with this form. But the record should be maintained by the partnership firm so that it can provide the documents to the authorities when needed.

The official portal of the Income Tax Department can be used to file the ITR-5 form and the documents will be needed for submission only when asked for them. In order to verify the partnership firm ITR filing process, the partner must possess digital signatures of class-2.

The Partnership firm ITR filing can be done easily by visiting the income tax website. When an income tax return is filed online, then the partners will need a digital signature of class-2. It should also be kept in mind that in order to perform an audit, the partnership firm needs to file for an ITR first.

But when an ITR for a Partnership firm is filed manually, then the assessee needs to print two copies of ITR-5. One of the copies needs to be signed by the assessee and sent to Post Bag No. 1, Electronic City Office, Bengaluru-560100, by an ordinary post. The other copy should be kept with the assessee in order to keep a record.

Tax Return due Date for a Partnership Firm

The due date for Partnership firm ITR filing varies as per the fact that the firm is required to be audited or not. When there is no need for the firm to be audited, then the ITRs can be filed by July 31st. But, when the firm needs to be audited, then the ITR should be filed before 30th September.

Requirements for Audit of a Partnership Firm

The partnership firms that satisfy a few conditions need to be audited. The following are the conditions for the audit of accounts of a partnership firm:

• The tidal income is more than Rs. 1 Crore in the last year
• The gross receipts in profession are more than Rs. 50 Lakhs in any of the last years
• Other than these, some more conditions are applied that can make it mandatory for the partnership to get its accounts audited

Assessing the Partners of the Firm

You need to follow the steps given below in order to assess the partners of the firm:

Step 1: Once the tax has been paid by the firm, the partners will not be liable to pay tax on their share of the income.

Step 2: The amount of interest income or remuneration that a partner receives is liable for taxation under “Professional or Business Income” except for the amount that wa disallowed to the firm because it was more than the limits of Section 40(b) and from assessment year 2004-05, the amount that is disallowed in case of a failure as per the Section 144 or non-compliance to the Section 184.