A partnership firm is an organization of more than one person to start business under one legal name. Each member known as a 'Partner', and collectively, all members are called as a 'Firm'. Registration is not mandatory for partnership firm it can be registered or unregistered parthnership firm. According to the Income Tax Act, partnership firm as 'a group of persons who have agreed to share the profit and loss of a business moving'.
What are the taxation on partnership firms?
According to the Income Tax Act of 1961, a partnership firm is subject to the following tax rates:
- 30% taxable income
- Surcharge at 12% taxable income is above one crore rupees
- The interest of capital up to 12% is allowed
- Education and Health cess at 4% of the tax including surcharges
It is important to know that partnership firm is a separate legal entity from its partners, unlike proprietorships. This means the firm has to pay tax on its own income, regardless of whether it is registered or not. A partnership firm must also pay an alternate minimum tax of 18.5% of the adjusted total income.
What are the deductions allowed for filing a Partnership Firm's tax returns?
The following deductions must be considered when determining your income tax:
- The non-working partners of the company receive wages, commissions, bonuses, and other compensation.
- Payments made to the partners that are not following the partnership deed
- If remuneration paid to partners are in accordance with the terms of the partnership deed but such transactions were made or was in relation to anything that pre-dates the partnership deed.
How to file tax returns for a Partnership Firm?
Filing tax returns for a partnership firm, you must fill out form ITR-5. The Form ITR-5 is applicable for filing income tax returns by entities such as firms, LLPs, AOPs, BOIs, AJPs, business trusts, investment funds, cooperative societies, and local authorities. All partnership firms are required to file income taxes, whether manually or digitally. Form ITR-5 can be filed online through the income tax e-portal. This form is used for filing ITR for partnership firms and not for individual partners. The Form ITR-5 does not require any attachments of supporting documents it. However, these documents may have to be submitted to the Income Tax Department if requested.
Due date for partnership tax filing?
The deadline for filing an income tax for a partnership firm is dependent upon whether the firm is required to be audited or not. The following are the deadlines:
- For firms that do not need an audit – the income tax returns should be filed by 31st July.
- For firms that needs an audit – the income tax returns should be filed by the 31st of October.
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