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A partnership is an agreement where two or more persons come together to form a business and divide the gains in an agreed ratio. This is controlled by an association of people it is not a separate legal entity distinct from its members in fact it is a collective name given to the individuals who are creating it. For taxation of partnership firm you just need to read the article carefully.

Partnership Firms are of two types-

1. Registered Partnership Firm
2. Unregistered Partnership Firm

Registered Partnership Firms registered under the provisions of the Indian Partnership Act, 1932. It has been registered with the registrar of firms and also acquired a registration certificate for the same.

Other than Registered under the Indian Partnership Act, 1932.

Partnership Firm Tax Rate

Taxation of partnership firm or Partnership firm income tax rules

A partnership firm is needed to file a partnership firm income tax return under the income tax act, 1961. The tax rate for a partnership firm is 30% of the total income. Apart from this, a partnership firm is liable to pay an income tax surcharge rate of 12%, if the total income exceeds Rs. 1 crore.

In addition to income tax and surcharge, partnership firms needed to pay education cess and secondary higher education cess. Education cess is applicable at the rate of 2% on the amount of income tax.

Partnership tax rate

Particulars	Partnership Income Tax rate or Tax on Partnership Firm
Income tax	30% on total annual income
Surcharge	12%
Education and Secondary education Cess	2% & 1% respectively

Note: - A partnership Firm whether it is registered or unregistered is liable to pay alternative minimum tax at the rate of 18.5% of adjusted total income.

Partnership Firm income tax calculation

Deductions Allowed

When you are calculating income tax payable, you should assess the available deductible income as well, a partnership firm can claim the below-mentioned deductions while filing their return:

1. If remuneration (partnership remuneration calculation) is paid to partners in line with terms of partnership deed but such transactions were made or were concerning anything that pre-dates the partnership deed.
2. The remunerations and interest paid to the partners of the partnership firm are not under the terms of the partnership.
3. Bonuses, salaries, partnership remunerations, and commissions are paid to the non-working partners of the firm.

ITR for Partnership Firm

Partnership form ITR form

Partnership firms have to file Form ITR-5 for filing their ITR. Partnership firms can file their return through the income tax department’s e-filing portal.

Furthermore, it needs to be noted that while filing these returns, there is not any requirement to attach any supporting documents along with it.

If a partnership firm does not require a Tax Audit, there is no compulsion to file an Income Tax Return online. Whilst filing ITR, the partners must have 3 digital signatures for verification of the filing process.

Note: - ITR 5 Form is used for file tax return for the partnership firm itself and not for the partners of the firm; partners have to file ITR-3

Income tax return due date for Partnership Firm

The due date for filing ITR for a partnership firm is dependent upon whether the firm is required to do an audit or not. The due date for filing an income tax return for a partnership firm is as follows:

Where the partnership firm is not required to get audited

The Income Tax Return of the partnership firm must be filed by 31^st July.

Where the partnership firm is required to get audited

The Income Tax Return of the partnership firm must be filed by 31^st October.

Procedure for filing Firm’s Tax Return

The income tax return of the Firm can be filed in the following ways;

Electronically

In this case, you can file the return electronically by using the digital signature or by electronic verification code.

Manually

In this case, you can file the return physically by submitting the acknowledgment of the return filed electronically. This submitted acknowledgment has to be signed and posted to CPC Bengaluru.

Audit requirement for Partnership Firm

Partnership firms are needed to get their accounts audited if they meet the below-mentioned criteria;

1. Carrying out a business and if the total sales exceed Rs. 1 crore in the previous year.
2. Carrying on profession and gross receipts of the profession exceeds Rs. 50 lakhs in the previous year.

Consequences of non-compliance of ITR-5

If Partnership Firm fails to File ITR-5 on time, section 234F will be applicable to you and you are liable to pay a maximum penalty of Rs. 10000.

Conclusion

So summing up with Tax Advisory, if you want to avoid income tax notice and to avoid penalties, you need to file your ITR on time. For filing your ITR or for gaining more information on taxation of partnership firm, the team of Tax Advisory is here for you. Tax Advisory is India’s leading legal service provider with experts like CA’s, CS’s, and lawyers. For any query or assistance, you can contact us on 9193555055 and visit www.taxadvisory.in.

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