IndiaFilings » Learn » Partnership Firm » Partnership Firm Tax Return Filing – e-Filing Procedure

Partnership Firm Tax Return Filing – e-Filing Procedure

Partnership Firm Tax Return Filing – e-Filing Procedure

A Partnership firm is a business structure where two or more persons are formed to conduct a business under one entity. Each person is called a “partner”, and collectively it is denoted as a “firm.” If a firm registers with the Registrar of Companies and obtains a registration certificate, it is called a registered partnership firm. It is known as unregistered if it does not have a registration certificate. Partnership firm e-filing involves submitting the firm’s tax return electronically using a designated form on the Income Tax Department portal. This article explores the taxation for partnership firms, deductions, ITR for partnership firms and e-filing procedure for partnership firm tax returns.

File your tax returns for your partnership firm with IndiaFilings experts!!

Get Started!

Types of Partnership Firms in India

A partnership firm in India is a business arrangement between two or more people who agree to share profits and jointly run the business. Governed by the Indian Partnership Act, 1932, there are currently two types of partnership firms can be general partnerships with unlimited liability for all partners, or limited liability partnerships (LLPs) offering personal asset protection.

1. General Partnership (GP): This is the most common and basic form of partnership. In a GP, all partners share management responsibilities, profits, and losses equally (unless otherwise agreed upon in a partnership deed). However, a major drawback is that all partners have unlimited liability, meaning their personal assets are on the line for business debts if the firm’s assets fall short.

2. Limited Liability Partnership (LLP): A relatively new form introduced in 2008, LLPs offer the advantage of limited liability for partners. Similar to a Limited Liability Company (LLC) in other countries, partners’ liability is restricted to their investment in the LLP. This protects their personal assets from business debts. LLPs also provide flexibility in management structures and profit sharing agreements.

Taxation Rules for Partnership Firm

According to the Income Tax Act 1961, partnership firms have a separate tax structure compared to sole proprietorships. This means the firm pays tax on its income regardless of registration status. Below, you can find the structure of taxation for partnership firms.

Tax Rates:

• Income Tax: 30% of taxable income
• Surcharge: 12% of income tax if taxable income exceeds ₹1 crore
• Interest on Capital Deduction: Up to 12% of the interest paid to partners is allowed as a deduction for the firm.
• Education and Health Cess: 4% of the total tax amount (including surcharge)
• Alternate Minimum Tax (AMT): 18.5% of the firm’s adjusted total income (ATI). ATI typically includes income from all sources, even if exempt under regular tax calculations.

Note: While the firm pays tax on its profits, individual partners are also taxed on their share of the firm’s profit according to their personal income tax slabs.

Also read: Difference between Company and Partnership

Tax Deductions allowed for Partnership firm

Taxpayers must know about the deductions allowed before calculating income tax. By claiming a deduction, your income tax liability can be decreased. The following firm expenses are eligible for tax deductions, 

• Remunerations include salaries, bonuses, or commissions paid to the non-working partners of the firm.
• Tax will be deducted for the partners’ payments that are not per the partnership deed.
• You will get the deductions for the payments made to the partners on any transaction before executing the partnership deed.

How to file your tax return for a Partnership firm online?

Income tax filing for partnership firms involves using the right form, preparing all the mandatory information, and submitting it. The following is the step-by-step process to file a partnership firm tax return online.

1. Use Form ITR-5: The ITR-5 form is specifically designed for partnership firms and similar entities.

2. Access the e-filing portal: Visit the Income Tax Department’s online portal.

3. Gather Information: Prepare all the financial information related to the partnership’s income, expenses, deductions, and taxes.

4. Fill ITR-5: Carefully enter all the required details in the ITR-5 form electronically.

5. No Mandatory Attachments: Unlike other filings, you generally don’t need to attach supporting documents with the ITR-5 initially.

6. Choose Verification Method: You can electronically verify the return using a digital signature or an Electronic Verification Code (EVC).

• Digital Signature requires all partners to have a Class 3 Digital Signature Certificate (DSC).
• Electronic Verification Code (EVC) involves receiving a one-time code via registered email or phone.

7. Audit Applicability: If your partnership firm requires a mandatory audit, using a digital signature and e-filing the audit report becomes compulsory.

8. Partner Verification: Regardless of the verification method chosen, ensure all partners participate in the final verification process.

9. Submit Return: Once verified by all partners, submit the completed ITR-5 electronically.

10. Maintain Records: Keep a copy of the submitted ITR-5 and all supporting documents for future reference.

What are the deadlines for filing a partnership firm tax return?

The deadline for income tax return filing for partnership firms in India differs depending on whether an audit is mandatory. Here’s a clear breakdown:

• If your partnership firm is not required to be audited, you can file your income tax returns by 31st July.
• If your partnership firm needs to be audited, you must file your income tax returns by 31st October.

Note: Meeting these deadlines ensures you remain compliant with tax regulations and avoid potential penalties. Deadlines for filing ITR for partnership firms could change, so check the official website or connect with IndiaFilings to ensure meet the deadlines. 

Common Errors While Filing Tax Returns & How to Avoid

Make sure to avoid the following errors while engaging in income tax return filing for partnership firms for a smooth process.

• Choosing the Wrong Form:
  • Use the correct ITR form. Always use Form ITR-5, specifically designed for partnership firms, LLPs, and similar entities. Avoid confusion with ITR-3, which is used for individual tax returns.
• Missing the Deadline:
  • Be aware of the deadlines to avoid late filing penalties.
    • 31st July: This applies to firms without a mandatory audit.
    • 31st October: This applies to firms requiring an audit (along with the audit report).
• Inaccurate or Incomplete Information:
  • Double-check all information entered in the ITR-5 form. Ensure details like income, expenses, deductions, and taxes align perfectly with your accounting records to avoid inconsistencies.
• Forgetting Supporting Documents (if requested):
  • While attachments aren’t mandatory with the initial e-filing, keep all relevant documents readily available and submit them promptly if the Income Tax Department requests them.
• Improper Verification:
  • Not verifying the ITR-5 using the appropriate method can lead to rejection. Choose a digital signature or an Electronic Verification Code (EVC) for verification.
• Skipping Partner Participation:
  • Ensure all partners participate in the final verification step before submission. Regardless of the verification method chosen, their involvement is crucial.

Conclusion

Filing your partnership firm’s tax return electronically offers a streamlined and efficient process. By understanding the types of partnership firms, taxation for partnership firms, deductions, and partnership firm tax returns e-filing procedures outlined in this article, you can ensure a smooth filing experience. Remember to meet the relevant deadlines to avoid penalties and keep clear records for future reference. Connect with IndiaFilings tax professionals to file tax returns with expert guidance.

Let IndiaFilings handle your partnership firm tax return filing to avoid penalties!!

Get Started!