All you need to know about Partnership Firm ITR Filing

Author : Govind J | Published On : 02 Apr 2024

In this Blog, Startupportal Business professional will explore ITR filing for partnerships, emphasizing compliance and understanding. Partnerships, operating as profit-oriented ventures through resource pooling, lack the legal status of corporations, rendering partners personally liable for debts. Understanding deductions and proper filing forms is crucial for financial efficiency.

What is a partnership firm?

partnership firm is a business structure where two or further people come together to jointly operate a business to make a profit. Each partner contributes resources alike as capital, expertise, or labor, and they share the earnings and losses according to the terms defined in a partnership agreement. Unlike corporations, partnership companies have no separate legal actuality from their proprietors.

What are the tax regulations for Partnership Firms?

According to the Income Tax Act of 1961, a partnership firm is subject to the following tax rates:

  • 30% of your overall income is taxed.
  • Whenever taxable income exceeds one crore, there is a 12% surcharge.
  • The interest earned will be increased by 12%.
  • 4% tax cessation, including surcharges, is applied to health and education.
  • It’s critical to understand that, in contrast to proprietorship businesses, a partnership business has a separate legal identity from its partners.
  • A partnership business is also required to pay an alternative minimum tax (AMT) at a rate of 18.5% of its adjusted total revenue, exactly like private limited company and LLPs.

What deductions are allowed in a partnership firm?

  • Paying partners remunerations or interest not aligned with the partnership agreement terms.
  • Disbursing salaries, bonuses, or commissions to non-working partners.
  • Providing remunerations as per the partnership deed but for transactions predating the deed.
  • Offering remunerations or interest to partners not meeting partnership rules.
  • Issuing payments like wages or commissions to non-executive partners.

How to file tax returns for a Partnership Firm?

When it comes to filing tax responses for a partnership firm, it’s vital to use Form ITR- 5 specially aimed for this purpose, distinct from ITR- 3 meant for individual partners. This form is to be filed for the partnership firm itself and can be accessed online through the Income Tax Department’s portal. It’s important to note that while submitting the return, it’s no necessary to attach supporting documents unless specially asked by the tax authorities.

Partnership firms are commanded to file their income tax returns electronically, either with or without a digital signature. However,e-filing becomes mandatory, If the establishment undergoes an audit. During the filing process, partners need to command a Class 3 digital signature to verify the submission. It’s mandatory to use Form ITR-5 exclusively for partnership firm tax returns and to separate it from ITR-3. Furthermore, businesses have the option to file returns using an Electronic Verification Code( EVC) if they lack a digital signature.

Tax Assessment of Partners:

Once the partnership firm has paid its taxes for a particular financial year, the partners will not be required to pay any further taxes from their share of the firm’s profits. Amount of interest and/or remuneration, etc. received by a partner will be taxed in his hands as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm that is more than limits laid down in Section 40(b) and amount disallowed in the event of any failure as mentioned in Section 144 or noncompliance of Section 184.

Deadline for Partnership Tax Filing?

The deadline for filing income tax returns for a partnership firm depends on whether the firm needs to undergo an audit:

  • If the firm is not required to be audited, the deadline for filing income tax returns is July 31st.
  • If the firm is required to undergo an audit, the deadline for filing income tax returns is October

It could be difficult to file income tax returns for a partnership firm. Additionally, filing tax returns incorrectly or improperly could result in severe fines and penalties for the firm. To accurately calculate the company’s income tax and file the return in a timely and hassle-free way, you must get in touch with Startupportal Business Service professionals who will guide you throughout in an effective manner.