Partnership Firm

Partnership Firm Tax Return Filing – E Filing Procedure

If you are a business partner in an Indian corporation, you may want to know how to file your partnership firm tax return. This article brings to light the prescribed online procedure for partnership firm tax return filing.

What Is a Partnership Firm?

When more than one person carries out a business under one entity, the firm is said to be a partnership firm. As per the Income Tax Act, Persons who have entered into a partnership with one another are called individually ‘partners’ and collectively ‘a firm’. Small enterprises opt to register as a partnership firm because the formation is straightforward, and there are minimal regulatory compliances.

What Are the Types of Partnership Firms?

Partnership firms could be of two broad categories – registered partnership firms and unregistered partnership firms. A partnership firm that has been registered with the registrar of firms, and has received a registration certificate, is said to be a registered partnership firm. An unregistered partnership firm is a  firm that does not possess a registration certificate.

Registration of a  partnership firm can be done even after it is formed. For non-registered partnership firms, there are no such penalties. It is to note that unregistered partnership firms are denied certain rights under section 69 of the Partnership Act, which deals with the non-registration of partnership firms.

What Are the Rules of Taxation for Partnership Firms?

As per the Income Tax Act, 1961, the following tax percentages pertain to a partnership firm:

  • On total income, a tax rate of 30%
  • A surcharge of 12% wherever taxable income is above ₹1 crore
  • 12% will be added to the interest gained
  • Health and education cessation is 4% of tax including surcharges.

It is important to know that, unlike proprietorship firms, a partnership firm has a different legal identity from that of its partners.

Also, similar to private limited companies and LLPs, a partnership firm is also mandated to pay an alternative minimum tax (AMT) at the rate of 18.5% of their adjusted total income. Alternative minimum tax should be increased by the education cess, secondary and higher education cess, and the applicable surcharge.

What Are the Deductions Allowed for the Tax Return Filing of a Partnership Firm?

You must take into account the following deductibles during the calculation of Income Tax:

  • Interest or remuneration paid to the partners of the partnership firm that are not in conformity with the partnership terms
  • Bonuses, remuneration, commissions, and salaries are paid to the non-working partners of the firm
  • If the remuneration paid to the partners conforms with the partnership terms, but the transactions of remunerations were made concerning anything that pre-dates the partnership deed.

What Is the Procedure to File Tax Returns for a Partnership Firm?

You can use the form ITR-5 to file tax returns for a partnership firm. This form ITR-5 is meant for the filing of tax returns for the partnership firm only, and not for the partners of the firm. Similar to other income tax return filings, you can file the ITR-5 online through the income tax department’s online portal.

There are usually no requirements to attach any kind of documents along with the form for filing the return. Any documents that are specifically asked for have to be submitted to the income tax department.

Modes of Partnership Firm Tax Return Filing

It is necessary for all the partnership firms to file income tax, either manually or electronically. Income Tax for a firm can be verified with or without a digital signature, or an electronic verification code (EVC). When a partnership firm is required to get an audit, it is compelled to do an e-filing of its income tax returns (ITR). For the filing of ITR, all the partners are required to have a Class 3 digital signature certificate (DSC) for verification of the filing process.

If the firm decides to file income tax returns manually, the assessee is required to print out two copies of Form ITR-V. One copy of the ITR-V has to be signed by the assessee and has to be posted to the centralised processing centre (CPC), Income Tax Department, Bengaluru, Karnataka 560500. The second copy of the ITR-V form has to be retained by the assessee for their record.

What Is the Deadline for the Partnership Firm Tax Return Filing?

Partnership firms that are mandated for audit, and those that are not mandated for audit, have different deadlines for the filing of income tax returns. The deadlines are as follows:

  • If the partnership is not required to be audited, the income tax returns must be filed by 31 July.
  • If the partnership is required to be audited, the income tax returns must be filed by 31 October.

The Takeaway

Filing Income Tax Returns for a partnership firm could be a tedious process. Also, improper or incorrect tax filing could attract huge penalties and legal difficulties for the firm. Therefore you must hire Vakilsearch’s experts to properly calculate the firm’s income tax and file the return in a proper, and hassle-free manner.

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