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Partnership Firm / LLP Income Tax Return

Firm (Section 2(23))

A partnership is a group of people who get together, according to the Partnership Act of 1932.

A partnership is an agreement between 2 or more persons to split the profits of a business they run together or independently. Individuals are referred to as "partners," whereas a collection of partners is referred to as a "firm."

  • It also includes LLP as defined under the Limited Liability Partnership Act,2008
  • Each partner's liability is unrestricted.
  • The firm is responsible for paying taxes.
Limited Liability Partnership

A limited liability partnership (LLP) is a type of partnership in which one partner is not accountable for the actions of another partner in the organization.

Types of partnership firm

  • A firm with a registered partnership
  • A partnership that Unregistered

A registered partnership firm has filed a registration application with the Registrar of Firms and acquired a registration certificate. Unregistered partnerships do not have a registration certificate from the Registrar of Firms.

Partnership Firms and Taxation

A partnership firm is obligated to pay the following tax percentages under the Income Tax Act of 1961: –

  • 30% Tax on Total Income of firm.
  • Surcharges of 12% on taxable income exceeding one crore rupees
  • Health and Education Cess 4% of the total tax, plus 12% surcharges

Partner Share of Profit from a Firm

Exemption:

  • Share of profit in the firm's total income is exempt in the hands of the partner.
  • Taxability of partner's share, where the firm's revenue is exempt
Payment of Interest, Bonus, Commission OR Remuneration

Interest & Remuneration paid by Firm/LLP is allowed as deduction if following conditions criteria fulfilled:

  • Remuneration only paid to working Partner.
  • Remuneration & Interest must be paid as per the partnership deed.
  • Maximum interest allowed on partner capital and loan is 12% p.a.
Remuneration allowed on a book profit basis
  • Up to 3 lakh book profit – Income up to 3 lakh- 90% of book profit or Rs.150000, whichever is higher
  • Balance income- 60% of book profit.

Income is declared under a presumptive tax scheme.

To reduce the compliance and tax-related burden of small taxpayers, the govt notify a scheme of Presumptive Taxation. Under this scheme, the small taxpayers are not required to maintain books of accounts, and their profits are presumed to be a specific percentage of the Total Sales / Receipts.

Sec 44AD

Resident individual, HUF, or partnership firm engaged in eligible business and who has not claimed deduction under section 10AA or Chapter VIA under "C– Deductions in respect of certain incomes."

Eligible business/ profession

Any business, other than business referred to in section 44AE, whose total turnover/ gross receipts in the P.Y. <= Rs. 200 lakhs

Minimum declaration of profit

8% of total turnover/ sales/ gross receipts or a sum higher than the sum above claimed to have earned the assessee.

6% of total turnover/ gross receipts in respect of the amount of total turnover/ sales/ gross receipts received by A/c payee cheque/ bank draft/ ECS / prescribed electronic mode during the P.Y. or before the due date of filing of return u/s 139(1) in respect of that P.Y.

Non-applicability of section 44AD in respect of the following persons:

  • LLP
  • A person carrying on profession specified u/s 44AA(1)
  • A person earning income like commission or brokerage
  • A person is carrying on any agency business.
Sec 44ADA

Resident individual, HUF, a partnership firm (except LLP) engaged in any profession specified u/s 44AA(1), namely, legal, medical, engineering, architecture or Profession of accountancy or technical consultancy or interior decoration or notified work (authorized representative, film artist, company secretary, profession of information technology)

Eligible business/ profession

Any profession specified under sec. 44AA(1), whose total gross receipts <= Rs. 50 lacs in the relevant P.Y.

Minimum declaration of profit

50% of total gross earnings from such a profession, or a sum greater than the sum reported to have been earned by the assessee.

This form can only be used by a person who is a resident for income tax purposes. So a non resident cannot use it even if his income is below 50 lakhs and has income taxable on a presumptive basis.

Tax rates applicable for Firm & LLP
Firms & LLP Flat rate of 30%
Surcharge applicable to Firm
Firm & LLP Surcharge
More than 1Crore 12%

Marginal relief is available if the tax payable including surcharge is more than the excess of income over the limit.

Returns for a Partnership Firm/LLP to File

The Form ITR-5 is required to be used when filing tax returns for a partnership firm as a whole, not for the individual partners. It is important not to mix up forms ITR-5 and ITR-3. ITR-5, like all other income tax returns, can be filed online through the income tax department's website.

It is also worth mentioning that no need to provide any supporting documentation when filing these forms. Only if the Income Tax Department specifically requests them should these documents be submitted.

A business must file an income tax return online, with or without a digital signature. The company can also use the Electronic Verification Code to file its income tax return. When a partnership firm is obliged to undergo an audit, it must electronically file its income tax returns. The partners must use a class-3 digital signature to verify the filing procedure when filing their income tax returns.

Penalty for late return filing

Return file after 31.12.2021

  • Up to 5 lakh income- Rs.1000
  • Income more than 5 lakh- Rs. 5000

Plans

Rs. 3999 All inclusive price

Starter

  • Income From Business (Turnover Up to 2Cr.)
  • Or
  • Income From Profession ( Turnover Up to 50 Lakh)
  • ITR Acknowledgement
  • Computation Of Total Income
  • Profit & Loss Account And Balance Sheet
  • Expert Support
Rs. 5999 All inclusive price

Plus

  • Income From Business (Turnover More than 2Cr.)
  • Or
  • Income From Profession ( Turnover More than  50 Lakh)
  • ITR Acknowledgement
  • Computation Of Total Income
  • Profit & Loss Account And Balance Sheet
  • Expert Support
Rs. 14999 All inclusive price

Pro

  • Income From Business (Turnover up to 2Cr.)
  • Or
  • Income From Profession ( Turnover up to 50 Lakh)
  • ITR Acknowledgement
  • Computation Of Total Income
  • Profit & Loss Account And Balance Sheet
  • Expert Support
  • Business Accounting For One Year
Rs. 17999 All inclusive price

Premium

  • Income From Business (Turnover More Than 2Cr.)
  • Or
  • Income From Profession ( Turnover More Than 50 Lakh)
  • ITR Acknowledgement
  • Computation Of Total Income
  • Profit & Loss Account And Balance Sheet
  • Business Accounting For One Year
  • Expert Support