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Partnership Firm / LLP for AY 2022
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Partnership Firm / LLP for AY 2022-23
Returns and Forms Applicable for Partnership Firm / LLP for AY 2022-23Disclaimer: The content on this page is only to give an overview / general guidance and is not exhaustive. For complete details and guidelines please refer Income Tax Act, Rules and Notifications.
Section 2(23)(i) of the Income Tax Act, 1961 states that the meaning of firm will be same as that in the Indian Partnership Act, 1932. Section 4 of the Indian Partnership Act, 1932 defines Firm as under:
“Persons who have entered into partnership with one another are called individually "Partners" and collectively "a Firm", and the name under which their business is carried on is called the "Firm Name".
As per the Income Tax Act, 1961, firm shall include a Limited Liability Partnership (LLP) as defined in the Limited Liability Partnership Act, 2008. Section 2(1)(n) of the Limited Liability Partnership Act, 2008 defines “Limited Liability Partnership” as a partnership formed and registered under the Act. It is a distinct legal entity separate from its Partner.
1. ITR-4 (SUGAM) – Applicable for Individual, HUF & Firm (other than LLP)
This return is applicable for an Individual or Hindu Undivided Family (HUF), who is Resident other than not ordinarily resident or a Firm (other than LLP) which is a Resident having Total Income up to ₹ 50 lakh and having income from Business or Profession which is computed on a presumptive basis (u/s 44AD / 44ADA / 44AE) and income from any of the following sources:
One House Property Other sources (Interest, Family Pension, Dividend etc.) Agricultural Income up to ₹ 5,000Note: This ITR-4 cannot be used by a person who:
(a) is a Director in a company
(b) has held any unlisted equity shares at any time during the previous year
(c) has any asset (including financial interest in any entity) located outside India
(d) has signing authority in any account located outside India
(e) has income from any source outside India
(f) is a person in whose case payment or deduction of tax has been deferred on ESOP
(g) who has any brought forward loss or loss to be carried forward under any head of income
Please note that ITR-4 (Sugam) is not mandatory. It is a simplified return form to be used by an assessee, at his option, if he is eligible to declare Profits and Gains from Business or Profession on presumptive basis u/s 44AD, 44ADA or 44AE.2. ITR-5
This return is applicable to a person being a:
Limited Liability Partnership (LLP)
Association of Persons (AOP)
Body of Individuals (BOI)
Artificial Juridical Person (AJP) referred to in clause (vii) of Section 2(31)
Local Authority referred to in clause (vi) of Section 2(31)
Representative Assessee referred to in Section 160(1)(iii) or (iv)
Society Registered under Societies Registration Act, 1860 or under any other law of any State
Trust other than Trusts eligible to file Form ITR-7
Estate of Deceased Person
Estate of an Insolvent
Business Trust referred to in Section 139(4E) and Investment Fund referred to in Section 139(4F)Note: However, a person who is required to file the Return of Income u/s 139(4A) or 139(4B) or 139(4D) shall not use this form.
1. Form 26AS - Annual Information StatementProvided by Details provided in the form
Income Tax Department
(It is available on the TRACES portal that may be accessed after logging on to e-Filing portal or Internet Banking)
Tax Deducted / Collected at Source
Advance Tax / Self- Assessment Tax paid
Specified Financial Transactions
Demand / Refund
Pending / Completed Proceedings
2. Form 16A – Certificate u/s 203 of the Income Tax Act, 1961 for TDS on Income other than SalaryProvided by Details provided in the form
Deductor to Deductee Form 16A is a Tax Deducted at Source (TDS) Certificate issued quarterly that captures the amount of TDS, Nature of Payments and the TDS Payments deposited with the Income Tax Department
3. Form 3CA-3CDSubmitted by Details provided in the form
Taxpayer requiring mandatory audit under any other law and who is required to get their accounts audited by an Accountant u/s 44AB. To be furnished on or before 30th September of the AY Report of audit of Accounts and Statement of Particulars required to be furnished u/s 44AB of the Income Tax Act, 1961
4. Form 3CB-3CDSubmitted by Details provided in the form
Taxpayer who is required to get his accounts audited by an Accountant u/s 44AB. To be furnished on or before 30th September of the AY Report of Audit of Accounts (Form 3CB) and Statement of Particulars (Form 3CD) required to be furnished u/s 44AB of the Income Tax Act, 1961
5. Form 3CEBSubmitted by Details provided in the form
Taxpayer who enters into an international transaction or specified domestic transaction is required to obtain a report from a chartered accountant u/s 92E. To be furnished at least 1 month before due date of filing of return u/s 139(1) i.e. 31st October of AY Report from a chartered accountant containing details of all international transaction(s) and specified domestic transaction(s)
Income Tax on Partnership Firms & LLP’s in India
Income Tax on Partnership Firms & LLP’s in India
Although Partnership Firms don’t have a separate legal entity, for the purpose of Income Tax, they are treated as different from their partners. Partnership Firms whether registered or unregistered are therefore required to register with the Income Tax Dept. and obtain a PAN Card No. and Income Tax on Partnership Firms is levied in the manner as explained below.
Benefits of Registering a Partnership Firm
Partnership vs Company: Which one is advisable or your business
How to create a Partnership Deed and Register a Partnership Firm in India
Moreover, for the purpose of Income Tax; LLP’s are treated the same as Partnership Firms and income tax on LLP’s is also levied in the same manner as .
Recommended Read: Benefits of creating a Limited Liability Partnership
Tax on Income of a Partnership Firm and LLPIncome Tax at a flat rate of 30% is levied on Partnership Firms and LLP’s. Computation of taxes as per Income Tax Slab Rates is not allowed as the benefit of Slab Rates is only available to Individuals and HUF’s. Education Cess @ 2% and SHEC @ 1% would also be required to be paid. Moreover, in case the income of the partnership firm is more than Rs. 1 Crore in any financial year, Surcharge @ 10% would also be payable.
Capital Gains arising from the sale of any asset by the partnership firm are taxable under Section 112. Moreover, in case of sale of shares and mutual funds, in case the period of holding is less than 1 year – the income would be taxable under Section 111A at a flat rate of 15% and in case the period of holding of shares is more than 1 year – the income would be exempted from the levy of tax under Section 10(38).
Remuneration and Interest is allowed to be paid to the partners. However, the tax deduction for remuneration and interest paid to the partners is allowed subject to the limits and conditions specified in Section 40(b)
Remuneration and Interest received by the partners shall be taxed in their hands as income under head PGBP. However, the salary and interest which have not been allowed under Section 40(b) or any other section shall not be added to the income of the partners.
The share of the partners in the total income of the firm is exempt in the hands of the partners as the same has already been taxed in the hands of the partnership firm.
Losses of the firm should be carried forward and not allowed to be allocated to the partners.
Deductions under Chapter VI-A would be allowed from the Gross Total Income only for Donations or in case the business falls under the specified category of business.
In case the partnership firm is unable to pay the tax dues, the partners can be held liable for recovery of the tax dues.
It is pertinent to note that although LLP’s are treated in the same manner as Partnerships, there is only one section which does not apply to LLP’s and applies to Partnership Firms which is Section 44AD. LLP’s cannot claim benefits of Section 44AD by using Presumptive Taxation.
Transfer of Asset by a Partner to the Partnership Firm and Vice Versa
Many a times, partner introduces capital in the Partnership by way of transfer of assets to the Partnership Firm. In such cases, provisions of Section 45(3) would be applicable and the amount recorded in the books of accounts of the Partnership Firm would become the Sale Consideration received in the hands of the Partner and tax would be levied in the hands of the partner based on the Sale Consideration Received.
In some cases, at the time of dissolution, the partnership firm also gives assets to the Partners. In such cases, provisions of Section 45(4) would be applicable and income tax would be levied in the hands of the partnership firm on the sale of asset. The fair market value of the asset on the date of sale of asset would be taken as the sale price and tax levied thereon.
ABOUT THE AUTHOR Karan Batra
CA Karan Batra, the founder of this website is All India Rank 22 in CA Exams and is regularly featured in both TV and Print media as a leading tax expert. He is the author of 2 books and has vast experience of representing cases before the Tax Dept.
What is a Partnership Firm and 5 Essential Elements of a Partnership
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Benefits of Registering a Partnership Firm in India
Partnership Firm Tax Return Filing
File income tax return for partnership firm online with Accountant support. Partnership firms are required to file tax return in form ITR-5 each financial year.
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Partnership Firm Tax Return Filing
What is a Partnership firm?
A partnership firm is a type of entity where more than one person is carrying out business under one entity. Partnerships firms in India are of two types - Registered partnership firms and unregistered partnership firms.
Registering a Partnership is the right choice for small enterprises as the formation is straightforward and there are minimal regulatory compliances.
The Partnership Act has been in existence in India since 1932, making partnerships one of the oldest types of business entities in India. A partnership firm can even be registered after it is formed. There are as such no penalties for non Registration of a Partnership firm.
But unregistered Partnership firms are denied certain rights under section 69 of the Partnership Act that majorly deals with the effects of non Registration of Partnership firms.
The income tax defines a Partnership firm as “Persons who have entered into a partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”. Hence, a firm that does not have a registration certificate from the registrar is an unregistered Partnership firm.
The tax rate for a Partnership firm
What is the tax rate for a partnership firm?
A partnership firm is required to file a partnership firm income tax return under the Income Tax Act,1961. Partnership firms are liable to pay income tax at the rate of 30% of total income. Besides, a partnership firm is liable to pay an income tax surcharge of 12% if the total income exceeds Rs.1 crores.
Additional to the income tax and surcharge a partnership firm must pay the education cess and the secondary higher education cess.
Education Cess is applicable on the amount of the income tax and the applicable surcharge at the rate of 2%. Secondary and higher education cess is applicable on the amount of the income tax and the applicable surcharge at the rate of 1%.
Alternative minimum tax
Similar to a private limited company or LLP, partnership firms are also required to pay alternate minimum tax at the rate of 18.5% of "adjusted total income". Alternate minimum tax would be increased by the applicable surcharge, education cess, and secondary and higher education cess.
The income tax calculation for Partnership firms
What are the allowed deductibles?
While calculating the payable income tax an individual must check the available deductible income
Remunerations or interest paid to the partners of the firm is not under the terms of the partnership.
Salaries, bonuses, remunerations, commissions paid to the non-working partners of the firm.
If remuneration paid to partners is following the terms of the partnership deed but such transactions were made or were concerning anything that pre-dates the partnership deed.
How to File Tax Returns for a Partnership Firm?
For Partnership income tax return filing should be done through Form ITR-5. This form ITR-5 is used to partnership firm income tax returns and not the tax returns for the partners.
Like all other income tax forms, ITR 5 is an attachment-less form and there is no requirement to submit any documents or statements along with the partnership firm tax returns. However, the taxpayers must save the records about business and produce the same before the tax authorities when requested.
ITR-5 can be filed online with the income tax department's online portal. The documents need to be submitted only when they are asked for. While filing the Partnership firm tax returns the partners must have class 2 digital signatures for verification of the filing process.
Procedure for filing Income tax returns of a partnership firm.
The income tax return of a partnership firm can be filed online through the income tax website or manually. If the income tax return is filed online then a class 2 digital signature will be required for the partner of the firm. Also, online income tax return filing is mandatory for partnership firms required to obtain an audit.
In case of manual filing, the assessee must print out two copies of Form ITR-V. One copy of ITR-V signed by the assessee has to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka). The other copy should be retained by the assessee for his/her record.