Partnership Firm Tax Return Filing
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Guide to Partnership Tax Return Filing in India.
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.
Income Tax Return Filing for Partnership Firms
As a partnership firm, it is important to file your income tax returns accurately and on time. The income tax return for a partnership firm is filed using Form ITR-5. This form requires you to provide details about the firm’s income, deductions, and tax liability. It is essential to maintain proper books of accounts and financial records to accurately calculate the firm’s income and expenses.
While filing the income tax return, you need to provide the following information:
- Details of partners, including their PAN and share in profits/losses
- Profit and loss statement
- Balance sheet
- Details of any other income earned by the firm
- Details of deductions claimed
It is important to ensure that the income tax return is filed within the due date to avoid penalties and interest charges. The due date for filing income tax returns for partnership firms is generally July 31st of the assessment year.
TDS Return Filing for Partnership Firms
Partnership firms are required to deduct TDS (Tax Deducted at Source) on certain payments made to individuals and businesses. The TDS deducted needs to be deposited with the government and a TDS return needs to be filed quarterly. The TDS return is filed using Form 26Q.
While filing the TDS return, you need to provide the following information:
- Details of deductee, including their PAN
- Details of TDS deducted and deposited
- Challan details
It is important to ensure that the TDS return is filed within the due date to avoid penalties and interest charges. The due dates for filing TDS returns are as follows:
- April to June (Quarter 1): July 31st
- July to September (Quarter 2): October 31st
- October to December (Quarter 3): January 31st
- January to March (Quarter 4): May 31st
GST Return Filing for Partnership Firms
If your partnership firm is registered under the Goods and Services Tax (GST), you are required to file regular GST returns. The GST return filing process involves providing details of your firm’s sales, purchases, and tax liability for a specific period.
There are different types of GST returns that need to be filed based on the turnover and nature of your business. Some of the commonly filed GST returns for partnership firms include GSTR-1, GSTR-3B, and GSTR-9.
It is important to ensure that the GST returns are filed within the due dates to avoid penalties and interest charges. The due dates for filing GST returns vary based on the turnover of your firm.
EPF Return Filing for Partnership Firms
If your partnership firm has employees, you are required to deduct and deposit the Employee Provident Fund (EPF) contributions on their behalf. Along with the EPF contributions, you also need to contribute towards the Employee Pension Scheme (EPS) and Employee Deposit Linked Insurance Scheme (EDLI).
EPF return filing involves providing details of the contributions made by the firm and the employees. The return needs to be filed monthly using Form 12A and Form 5/10/12/15/21.
It is important to ensure that the EPF returns are filed within the due dates to avoid penalties and interest charges. The due date for filing EPF returns is generally the 15th of the following month.
Tax Audit for Partnership Firms
Partnership firms with a turnover exceeding a certain threshold are required to undergo a tax audit. A tax audit is conducted by a qualified chartered accountant to verify the accuracy of the firm’s financial statements and compliance with tax laws.
The tax audit report needs to be filed along with the income tax return. The due date for filing the tax audit report is generally September 30th of the assessment year.
It is important to ensure that all the necessary tax and regulatory requirements are fulfilled to avoid any legal or financial consequences. Partnering with a professional tax consultant or chartered accountant can help you navigate through the complexities of partnership tax return filing and ensure compliance with all the applicable laws and regulations.
Understanding Partnership Firms and Taxation in India
Partnership Firm: A Brief Overview
A partnership firm is a type of business entity formed by two or more individuals who come together to work under a single enterprise. It is a popular form of business organization, especially for small and medium-sized enterprises. There are two main categories of partnership firms: registered partnership firm and unregistered partnership firm.
Registered Partnership Firm
A registered partnership firm is one that has undergone formal registration with the Registrar of Companies (ROC) and has received a registration certificate as evidence of its legal existence. Registering a partnership firm provides various benefits, such as legal recognition, protection of rights, and access to legal remedies in case of disputes. It also enables the firm to enter into contracts, own property, and sue or be sued in its own name.
Unregistered Partnership Firm
An unregistered partnership firm, on the other hand, refers to a partnership that lacks a registration certificate from the Registrar of Firms. While it is not mandatory to register a partnership firm, it is advisable to do so to enjoy the benefits of legal recognition and protection. An unregistered partnership firm may face certain limitations, such as the inability to file a lawsuit in its own name.
Partnership and Profit Sharing
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. The partnership agreement outlines the rights, responsibilities, and profit-sharing ratios of each partner.
Partners need to be aware of the partnership firm tax rate and how it affects the distribution of profits. The tax rate for partnership firms is 30% on their taxable income. It is important to consider this tax liability while determining the profit-sharing ratios to ensure fair and equitable distribution of profits among the partners.
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. Even if there was no business activity and the partnership firm’s income is zero (nil), filing a nil income tax return within the stipulated due date is still mandatory.
Understanding the partnership firm tax rate (30%) is crucial for making informed financial decisions within the business. It is advisable to seek professional tax advice to ensure accurate compliance with the income tax regulations and to optimize tax planning strategies for the partnership firm.
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 the net income exceeds 1 crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on the 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 (MAT). 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.
It is important for partnership firms to be aware of their tax obligations and to maintain accurate records with full transparency for the benefit of all partners. Seeking professional tax advice can help partnership firms optimize their tax planning strategies and ensure compliance with the income tax regulations.
Deductions and Filing Requirements for Partnership Firms
When calculating the liability of income tax on a partnership firm, there are several deductions allowed. These deductions are permitted for the following:
Remunerations or Interest Paid to Partners: If remunerations or interest paid to partners do not conform to the terms of the partnership agreement, they can be deducted.
Salaries, Bonuses, and Commissions for Non-Working Partners: If salaries, bonuses, remunerations, and commissions are paid to non-working partners of the firm, they are eligible for deduction.
Remuneration Paid to Partners for Pre-Existing Transactions: If remuneration paid to partners complies with the partnership deed but relates to transactions that pre-date the partnership deed, it can be deducted.
ITR Forms for Partnership Firm
Partnership firms can file their income tax returns through Form ITR-4 or ITR-5.
ITR-4: ITR-4 is to be filed by partnership firms with a total income of up to 50 lakh and income from business and profession computed under presumptive basis.
ITR-5: ITR-5 is to be filed by partnership firms that are required to get their accounts audited.
Deadline for Partnership Firm Tax Filing
The deadline for filing income tax returns 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 partnership firm is required to file GST returns if its aggregate annual turnover exceeds Rs. 20 lakhs.
Usually, 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 by the partnership firm if it has a valid TAN (Tax Deduction and Collection Account Number). The type of TDS return to be filed depends upon the purpose of deduction.
The types of TDS returns 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
If a partnership firm employs more than ten persons, it is required to get EPF (Employee Provident Fund) registration, and accordingly, filing of EPF return becomes mandatory.
Accounting and Bookkeeping
Books of account are required to be maintained by the partnership firm if its 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 the business exceed Rs. 1 crore in the financial year. However, it may be required to get its accounts audited in certain other circumstances.