Managing a Partnership Firm in India comes with significant financial and legal obligations. Adherence to diverse tax and regulatory requirements is essential to ensure the seamless operation and expansion of your business. These responsibilities include filing Income Tax Returns, TDS Returns, GST Returns, EPF Returns, and, on occasion, undergoing a Tax Audit.
What is a partnership firm compliance?
Starting a business in India is often accomplished through a Partnership firm. These firms, like LLPs and registered Companies, must maintain compliance. The regulations for Partnership firms are governed by the Partnership Act of 1932. Beyond basic compliance, they may also need to adhere to TDS, GST, ESI, and other regulations. Compliance requirements can vary depending on factors such as entity type, industry, state of incorporation, employee count, and sales turnover. Partnership firms must adhere to:
Monthly or Quarterly GST Return filing (if registered under Goods & Services tax).
Monthly TDS payment and Quarterly TDS return submission.
Monthly ESI and EPF return filing.
Income Tax Return (ITR) submission for the Partnership firm.
Income Tax Return (ITR) filing for individual Partners.
Audit Report certified by a Chartered Accountant.
The benefits of timely compliance for Partnership Firms
Legal Credibility: Timely compliance establishes a favorable track record for Partnership Firms within the legal framework.
Penalty Avoidance::Avoiding hefty penalties and stringent consequences through consistent adherence to regulations.
Enhanced Borrowing Opportunities: Partnership Firms with a history of regular compliance find it easier to secure loans and financial support.
Expedited Approvals: Swift approval processes for new ventures, including Joint Ventures with foreign entities, thanks to a clean legal image.
Taxation Benefits: Partners can avoid personal tax implications and the burdens of heavy income tax penalties and inquiries.
Tax & Process
Income Taxation for Partnership Firms:
Income Tax Rate: Partnership firms are subject to an income tax rate of 30% on their taxable income.
Surcharges: When the partnership firm's taxable income exceeds one crore rupees, an additional surcharge of 12% is applicable on top of the income tax.
Interest Deduction: Partnership firms can claim a deduction of up to 12% on the interest paid on capital.
Health and Education Cess: A 4% Health and Education Cess is imposed on the total tax amount, including surcharges.
Marginal Relief: If the net income surpasses 1 crore, the income tax and surcharge payable cannot exceed the total tax amount on a total income of 1 crore by more than the income exceeding 1 crore.
Invoices for sales and purchases during the financial year.
Invoices for expenses incurred during the financial year.
Bank statements for partners' bank accounts.
Copies of filed TDS returns.
Copies of filed GST returns.
Obtaining of PAN and TAN:After completing the firm's registration process, a Partnership firm must obtain a Permanent Account Number (PAN) and a Tax Deduction Account Number from the Income Tax Department.
Income Tax Filing: Regardless of revenue or loss, Partnership firms must file an Income Tax Return (ITR) at a fixed rate of 30%, with an additional surcharge on income tax.
Tax Audit: Partnership Firms with an annual turnover exceeding Rs. 100 lakhs are mandated to undergo a tax audit.
GST Compliance: GST registration is required for firms with an annual turnover exceeding Rs. 40 lakhs (Rs. 20 lakhs for North Eastern states). Certain businesses, such as Export-Import, E-commerce, and Market Place Aggregator, must mandatorily register for GST.Following GST registration, firms must regularly file monthly, quarterly, and annual GST returns.
TDS Compliance: Partnership firms with a Tax Deduction Account Number (TAN) must file quarterly TDS returns as per TDS rules.
ESI Registration: Partnership firms with ESI registration must file ESI returns, which is mandatory.
Are Partnership firms required to carry out auditing?
Partnership firms are not required to conduct annual audits by default. However, the need for a tax audit may arise based on factors such as turnover and other specific criteria.
What are the compliances for Partnership firms?
The primary compliance requirement for partnership firms is the filing of income tax returns. This sets them apart from corporate entities like LLPs and companies, which have additional obligations such as annual return filings.
What is the importance of a Partnership deed?
A Partnership deed outlines all the terms and conditions governing the partnership, including the rights and responsibilities of each partner. It is a critical document that regulates the partnership.
Is a Partnership firm a separate legal entity?
No, a partnership firm and its partners are considered one and the same. In partnership firms, the partners have unlimited liability, and they share joint responsibility for the firm's liabilities.
Is it necessary for the Partnership firm to file income tax returns?
Yes, regardless of the turnover and the financial outcomes, a partnership firm is obligated to file income tax returns.