Partnership firms are a common form of business organization in India. Just like individuals and companies, partnership firms are also required to comply with the provisions of the Income Tax Act, 1961, and file their Income Tax Returns (ITR) annually.

In this guide, we’ll walk you through everything you need to know about Income Tax Return filing for partnership firms, including types, filing process, due dates, and penalties.

 What is a Partnership Firm?

A partnership firm exists when multiple people unite to do business while sharing both enterprise earnings and business-related costs. These firms can be:

• Firms established as partnerships need to register under the Indian Partnership Act from 1932.

• Unregistered Partnership Firms

Every partnership firm must file taxes and submit returns based on Income Tax Act regulations.

Income Tax Applicability for Partnership Firms

• Tax Rate:

1. A partnership firm (whether registered or not) is taxed at a flat rate of 30% on its total income.

2. The tax rate becomes 12% when the total income of the business reaches over ₹1 crore.

3. Health and Education Cess: 4% on the total of income tax and surcharge.

• Alternate Minimum Tax (AMT):

1. If the total income is claimed after deductions under Chapter VI-A (e.g., 80-IA to 80RRB), and the tax payable is less than 18.5% of adjusted total income, then AMT at 18.5% (plus surcharge and cess) is applicable.

Allowable Deductions to the Firm

• A partnership firm can claim:

1. Partnerships are entitled to pay their members either through their partnership agreement or based on Income Tax Act restrictions.

2. The firm can deduct interest payments on capital invested up to a 12% per annum rate.

3. Business expenses like rent, salaries, depreciation, etc.

Note: Partnership Deed authorization is required for approval of all mentioned items.

Which ITR Form is Applicable?

• Partnership firms must file Form ITR-5.

• This form is applicable for:

1. Partnership Firms
2. LLPs
3. AOPs (Association of Persons)
4. BOIs (Body of Individuals), etc.

Filing Due Date of ITR for Partnership Firms

Audit Requirement for Partnership Firms

Audit under Section 44AB is mandatory if:

• Turnover exceeds ₹1 crore (normal business)

• Gross receipts exceed ₹50 lakh (for professionals)

• Opting for Presumptive Taxation under Section 44AD/44ADA but declaring profits lower than deemed and income exceeds the basic exemption limit.

Presumptive Taxation Scheme for Partnership Firms

Partnership firms (other than LLPs) can opt for Section 44AD if:

• Turnover is up to ₹2 crore.

• Declares income at 8% (cash) or 6% (digital) of turnover.

  No books of accounts or audit required if opted properly.

Documents Required to File ITR for Partnership Firms

• PAN of the firm

• Partnership deed

• Profit & Loss Account and Balance Sheet

• Bank statements

• Details of partners’ remuneration & interest

• Audit report (if applicable)

• Tax payment challans (Advance tax or Self-assessment tax)

Penalties for Late Filing

(₹1,000 if total income is below ₹5 lakh)

• Other consequences:

1. Losses cannot be carried forward.

2. Interest under Sections 234A, 234B, and 234C.

Advance Tax for Partnership Firms

If the tax liability exceeds ₹10,000 in a year, advance tax must be paid in four installments:

• 15% by 15th June

• 45% by 15th September

• 75% by 15th December

• 100% by 15th March

Failure attracts interest under Sections 234B and 234C.

How to File Income Tax Return for Partnership Firms?

• Register/Login on Income Tax Portal

• Go to e-file > Income Tax Return

• Select Assessment Year, ITR Form (ITR-5), and filing type

• Fill all relevant details

• Attach required documents

• Verify return using DSC or Aadhaar OTP

• Download the acknowledgment (ITR-V)

 Signature Requirement

Return of a partnership firm must be signed by:

• The Managing Partner

• Any authorized partner if managing partner is not available

Why File ITR for a Partnership Firm?

• Legal compliance

• Avoid penalties

• Claim refunds

• Carry forward losses

• Required for loans, tenders, and business growth

Conclusion

Partnership firms must fulfill their legal obligation to file tax returns since this action boosts their financial reliability. Following tax laws as a business owner of any size will help maintain solid operations while creating new growth possibilities.

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