Tax Returns Filing for Partnership Firms

Tax Returns for Partnership Firms: In which several individuals collaborate within a unified entity, it is designated as a partnership firm. Under the Income Tax Act, the participants in a partnership are individually known as 'partners' and collectively as 'a firm.' The straightforward formation process and less regulatory obligations make a partnership registration an attractive choice for many small enterprises which want to group and help each other grow.

Types of Partnership Firms

There are two types of partnership firms: one registered and other unregistered. A registered partnership firm holds a registration certificate from the Registrar of Firms, while an unregistered one does not possess this certification of registration .

It's worth emphasizing that partnership firms can register themselves even after their formation without incurring penalties. However, it's important  to recognize that unregistered partnership firms may forfeit certain rights detailed in Section 69 of the Partnership Act, which outlines the repercussions of non-registration.

Rules of Taxation for Partnership Firms

As outlined in the Income Tax Act of 1961, the tax framework for a partnership firm includes the following elements:

• 30% tax rate on the total income.
• 12% surcharge is applicable when the taxable income exceeds ₹1 crore.
• An additional 12% is levied on the interest earned.
• Health and education cess amount to 4% of the tax, including surcharges.

Importantly, unlike proprietorship firms, a partnership firm maintains a distinct legal identity independent of its partners.

In addition, similar to private limited companies and LLPs, a partnership firm is required to pay an alternative minimum tax (AMT) at a rate of 18.5% of its adjusted total income. The AMT is subject to augmentation, considering the inclusion of education cess, secondary and higher education cess, and the applicable surcharge.

Deductions Allowed for the Tax Return Filing of a Partnership Firm

Take note of the following deductions when computing Income Tax:

• Interest or remuneration disbursed to partners of the partnership firm not in accordance with the partnership terms.
• Bonuses, remuneration, commissions, and salaries distributed to non-working partners of the firm.
• Remuneration paid to partners in accordance with the partnership terms but encompassing transactions predating the partnership deed.

Modes of Partnership Firm Tax Return Filing

Partnership firms must fulfill their income tax filing obligations, employing either manual or electronic methods. Verification of a firm's Income Tax can take place with or without a digital signature or an electronic verification code (EVC). In instances where a partnership firm is obligated to undergo an audit, electronic filing of its income tax returns (ITR) becomes mandatory. To facilitate the streamlined ITR filing process, it is imperative for all partners to possess a Class 3 digital signature certificate (DSC) for verification purposes.

Deadline for the Partnership Firm Tax Return Filing

Partnership firms, regardless of whether they are subject to an audit, follow specific deadlines for filing income tax returns:

• For partnerships not requiring an audit, the deadline for filing income tax returns is 31 July.
• In the case of partnerships necessitating an audit, the deadline for filing income tax returns is 31 October.

Conclusion

When filing tax returns for a partnership firm, it entails submitting essential financial information and documents to the tax authorities. This procedure ensures adherence to tax regulations and obligations, encompassing a comprehensive overview of the firm's income, expenses, deductions, and other pertinent financial data. The annual activity of partnership firm tax return filing is crucial, serving to meet legal requirements and uphold financial transparency.

Why Seedup

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1.Free Consultation: Our professionals will provide you a 15 minutes free consultation on the regulatory aspects and case to case basis consultation depending upon the business conditions of the enterprise.

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