What Is a Partnership Firm?
Partnership firms are firms in which more than one person manages a business under one entity. Individuals who enter into partnerships with one another are referred to as ‘partners’ and collectively as ‘a firm’ under the Income Tax Act. A partnership firm is an excellent choice for small businesses since it is straightforward to form and there are minimal regulatory requirements.
How Do Partnership Firms Work?
Registered partnership firms and unregistered partnership firms can be classified as partnership firms. Registration of a partnership firm with the registrar of firms, and receipt of a registration certificate, constitutes registration as a partnership firm. Without a registration certificate, a partnership firm is unregistered.
It is possible to register a partnership firm after it has been formed. There are no such penalties for non-registered partnership firms. In accordance with section 69 of the Partnership Act, unregistered partnership firms are denied certain rights.
How Are Partnership Firms Taxed?
A partnership firm is subject to the following tax percentages under the Income Tax Act, 1961:
- A 30% tax rate is applied to total income
- When taxable income exceeds $1 crore, there is a 12% surcharge
- Interest gained will be taxed at 12%
- Health and education cessation is 4% of tax plus surcharges.
As opposed to proprietorship firms, partnership firms have a separate legal identity from their partners.
In addition, partnership firms are required to pay the alternative minimum tax (AMT) at a rate of 18.5% of their adjusted total income, like private limited companies and limited liability partnerships. It is recommended that the alternative minimum tax be increased by the education cess, secondary and higher education cess, and the applicable surcharge.
How Does a Partnership Firm File its Tax Return?
When calculating income tax, you must take into account the following deductibles:
- Payments made to partners of the partnership firm that do not comply with the partnership agreement
- Non-working partners of the firm receive bonuses, remuneration, commissions, and salaries
- Assuming the remuneration paid to the partners conforms to the partnership agreement, but the remuneration transactions predate the partnership agreement.
How Do Partnership Firms File Tax Returns?
Partnership firms can file tax returns using form ITR-5. Form ITR-5 is intended only for filing tax returns for partnership firms, not for their partners. Through the income tax department’s online portal, you can file the ITR-5 online like other income tax returns.
Forms for filing returns do not require attachments of any kind. Income tax must receive any documents specifically requested.
Also read: how to register partnership firm ?
Filing modes for partnership firm tax returns
All partnership firms must file income taxes, either manually or electronically. An electronic verification code (EVC) or digital signature can be used to verify a firm’s income tax. The income tax returns (ITRs) of partnership firms that are audited must be e-filed. A Class 3 digital signature certificate (DSC) is required for each partner to file an ITR.
A firm that chooses to file income tax returns manually is required to print out two copies of Form ITR-V. It is necessary for the assessee to sign and send a copy of the ITR-V to the Income Tax Department, Bengaluru, Karnataka 560500. It is necessary for the assessee to keep a copy of the second ITR-V form for their records.
When is the deadline for filing partnership firm tax returns?
Income tax returns must be filed by different deadlines for partnership firms that are audited and those that are not. Here are the deadlines:
- It is necessary to file income tax returns by 31 July if the partnership is not required to be audited.
- The partnership must file its income tax returns by 31 October if it is audited.
Partnership firms may find it difficult to file their Income Tax Returns. The firm could also face huge penalties and legal difficulties if the tax filing is improper or incorrect.