Partnership Tax Return - Taxation, Deductions allowed, Filing Tax Returns and Audit requirements for Partnership Firms

Partnership Tax Return

Despite the fact that Partnership Firms don't have a separate legal entity, with the end goal of Income Tax, they are considered as separate from their partners. Partnership Firms whether registered or unregistered are accordingly needed to register with the Income Tax Dept. and to get a PAN Card Number. Income Tax on Partnership Firms is charged as clarified below:

A partnership firm is a body of more than one individual managing business under one entity. There are two kinds of partnership firms-

• Registered partnership firm
• Unregistered partnership firm

A registered partnership firm is a partnership that has been registered with the Registrar of Firms and has gotten a registration certificate for the equivalent. Any partnership firm that doesn't have a registration certificate from the Registrar of Firms is an unregistered partnership firm.

(Also Read: Income Tax slabs for FY 2020-21)

Taxation of Partnership Firms

Under the Income Tax Act, 1961, a partnership firm is legally responsible to pay the following tax rates:

• 30% income tax
• 12% surcharges where taxable income is over one crore rupees
• Up to 12% on interest of capital is permitted
• Health and Education Cess 4% of tax including surcharges

A partnership firm has a separate legal identity from that of its partners, exactly opposite from proprietorship. It is additionally necessary to get to know that for the objectives for paying income tax for a partnership firm it is not that important whether the firm is registered or unregistered.

As same as LLPs and private limited companies, a partnership firm is likewise needed to pay alternate minimum tax which can't be below 18.5% of the adjusted total income.

Deductions Allowed

While ascertaining the income tax that should be paid, one should pay notice to the accessible deductible incomes. They are as per the following:

• Remunerations or interest paid to the partners of the firm which are not as per the terms of the partnership.

• Salaries, bonuses, remunerations or commissions given to the non-working partners of the firm.

• On the off chance that compensation paid to partners are as per the terms of the partnership deed yet such transactions were made or was comparable to anything that pre-dates the partnership deed.

(Also Read: Income Tax on income earned by the freelancer)

Filing Tax Returns for a Partnership Firm

To file tax returns for a partnership firm, one should utilize the Form ITR-5. The form ITR-5 is utilized to file tax returns for the partnership firm itself and not for the partners of the firm. One should not confound form ITR-5 and ITR-3.

Like any remaining income tax return filings, ITR-5 can be filed online through the income tax departments online portal. Likewise, it should be noticed that while recording these returns, one doesn't have to connect any supporting documents alongside it. These documents should be submitted to the Income Tax Department just in the event that they are explicitly requested.

A partnership firm isn't constrained to do e-documenting of its income tax returns except if the partnership firm is needed to get an audit.

While recording the income tax returns, the partners should have a class 2 digital signature for verification of the documenting process.

What is the Deadline for Partnership Tax Filing?

The deadline for recording on income tax for a partnership firm is reliant upon if the firm is needed to be audited.

– Where the firm isn't needed to be audited, the income tax returns should be filed by 31st July.

– Where the firm is needed to be audited, the firm needs to file its income tax returns by 30th September.

Audit Requirement for Partnership Firms

Partnership firms that conform to any of the conditions beneath would be needed to get the accounts audited:

• Carrying on business and complete sales surpass Rs.1 crore in the earlier year.

• Carrying on a profession and gross receipts in profession surpass Rs.50 lakhs in any earlier year.

Moreover, there are different related conditions which could make an audit mandatory for a partnership firm.

In the event that a partnership firm went into international transactions or specified domestic transactions a report should be outfitted in Form No. 3CEB under section 92E. For partnership firms needed to outfit Form 3CEB, the deadline for documenting tax return is 30th November.