Partnership – Annual Compliance

Partnership – Annual Compliance

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Throughout India, partnership firms can be divided into two categories: registered partnership or non-registered partnership. Registered partnership companies are those companies that have a certificate of registration from the company registrar. All those partnerships that do not have a Certificate of Registration will be listed as unregistered partners.

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Under the Income Tax Act, a partnership is defined as “Persons who have entered into a partnership with each other are individually referred to as ‘partners’ and collectively ‘a firm,’ and the name under which their business is carried on is referred to as the ‘firm name.’

 

Tax Rate:

Partnership companies are liable to Education pay 30% as income tax of total income. In addition to income tax, a partnership company is liable to pay an income tax surcharge at a rate of 12% on the amount of income tax, if the total income exceeds Rs.1 crores. Besides income tax and surcharge, a partnership company has to pay education cess and secondary higher education cess.

Education Cess is applicable on the amount of income tax and the applicable surcharge at the rate of 2%. Secondary and higher education cess is applicable on the amount of income tax and the applicable surcharge at the rate of 1%.

 

Alternative Minimum Tax:

Partnership companies are liable to Education pay 30% as income tax of total income. In addition to income tax, a partnership company is liable to pay an income tax surcharge at a rate of 12% on the amount of income tax, if the total income exceeds Rs.1 crores. Besides income tax and surcharge, a partnership company has to pay education cess and secondary higher education cess.

Education Cess is applicable on the amount of income tax and the applicable surcharge at the rate of 2%. Secondary and higher education cess is applicable on the amount of income tax and the applicable surcharge at the rate of 1%.

 

Income Tax Calculation:

While calculating the income tax applicable for a partnership firm, it is important to note that the following types of expenses paid by the partnership firm to the partners are not allowed as deductions:

  • Salary, bonus, commission, or remuneration paid to non-working partners.
  • Remuneration or interest paid to the partners which are not by the terms of the partnership deed.
  • If remuneration or interest paid to the partners are by the terms of the partnership deed but they relate to any period before the date of the partnership deed.

In addition to the above, interest paid to partners is by the terms of the partnership deed should not exceed 12% per annum. Also, remuneration paid to partners should be by the terms of the partnership deed and should not exceeds the following permissible limit:

  • On first Rs. 3 Lakhs of book profit or in the case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more.
  • On the balance of the book profit – 60% of book profit.

 

Tax Return Due Date:

The income tax return due date for most partnership firms is July 31 of the assessment year. Partnership firms required to get their accounts audited under the income tax Act must file the income tax return before the September 30th deadline.

 

Audit Requirement:

Partnership firms that conform to any of the conditions below would be required to get the accounts audited:

  • Carrying on business and total sales exceed Rs.1 crore in the previous year.
  • Carrying on a profession and gross receipts in profession exceed Rs.50 lakhs in any previous year.

In addition, there are other conditions applicable that could make an audit mandatory for a partnership firm.

If a partnership firm entered into international transactions or specified domestic transactions a report must be furnished in Form No. 3CEB under section 92E. For partnership firms required to furnish Form 3CEB, the deadline for filing a tax return is 30th November.

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