TAXAJ

Income Tax Filing for Partnership Firms

A partnership firm is a body of more than one person conducting business under one entity. There are two types of partnership firms –

  • Registered partnership firm 
  • Unregistered partnership firm

A registered partnership firm is a partnership firm that has been registered with the Registrar of Firms and has received a registration certificate for the same. Any partnership firm that does not have a registration certificate from the Registrar of Firms is an unregistered partnership.

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About This Plan

Are you a freelancer or do you run your own business? Prepare your business accounts and file returns with TAXAJ.

Created by potrace 1.15, written by Peter Selinger 2001-2017

Timeline

It usually takes 3 to 5 working days.

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Services Covered
Who Should Buy
How It's Done
Documents Required
Services Covered

  • Account Summary - P&L and Balance Sheet (up to 250 entries per year)
  • Advance Tax Payment (4 nos.)
  • Expert Assisted Tax Filing for business and professionals
  • Tax Savings & Planning Advice
  • Documented follow up
  • Excludes the Tax audit Fees
Who Should Buy
  • Proprietorship or Partnership entity required to maintain books of accounts and file tax returns.
How It's Done

    • Purchase of plan
    • Upload documents
    • Financial Statements Preparation
    • Review computation sheet
    • Return filed & acknowledgement generated
Documents Required
  • KYC, Email, Phone No. of Firm and Partners
  • Bank statements for the financial year
  • Income and Expense statements
  • Auditor reports
  • Invoices for the year

What is a Partnership Firm?

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.

Taxation of Partnership Firms

Under the Income Tax Act, 1961, a partnership firm is liable to pay the following tax percentages: – 

  • 30% income tax 
  • 12% surcharges where taxable income is above one crore rupees 
  • Up to 12% on interest of capital is allowed 
  • Health and Education Cess 4% of tax including surcharges 

It is to be noted that a partnership firm has a different legal identity from that of its partners, unlike proprietorships. It is also important to know that for the purposes of paying income tax for a partnership firm it is immaterial whether the firm is registered or not. Just like LLPs and private limited companies, a partnership firm is also required to pay alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Deductions Allowed

When calculating the income tax that needs to be paid, one must pay heed to the available deductible incomes. They are as follows:

  • Remunerations or interest paid to the partners of the firm which are not in accordance with the terms of the partnership.
  • Salaries, bonuses, remunerations, commissions paid to the non-working partners of the firm.
  • If remuneration paid to partners are in accordance with the terms of the partnership deed but such transactions were made or was in relation to anything that pre-dates the partnership deed.

Filing of Tax Returns for a Partnership Firm

For the purpose of filing tax returns for a partnership firm, one must use the Form ITR-5. The form ITR-5 is used to file tax returns for the partnership firm itself and not for the partners of the firm. One must not confuse form ITR-5 and ITR-3. Similar to all other income tax return filings, ITR-5 can be filed online via the income tax departments online portal. 

Also, it needs to be noted that while filing these returns, one does not need to attach any supporting documents along with it. These documents need to be submitted to the Income Tax Department only if they are specifically asked for. 

It is compulsory for a firm to file income tax return electronically with or without digital signature. The firm can also file income tax return under Electronic Verification Code. However, a partnership firm is compelled to do e-filing of its income tax returns when the partnership firm is required to get an audit. While filing the income tax returns, the partners must have a class 3 digital signature for verification of the filing process.

Deadline for Partnership Tax Filing?

The deadline for filing an income tax for a partnership firm is dependent upon whether the firm is required to be audited or not. The deadlines for filing income tax return are as follows:

  • Where the firm is not required to be audited – the income tax returns must be filed by 31st July. 
  • Where the firm is required to be audited  – the firm has to file its income tax returns by 31st October

Audit requirements for Partnership Firms

Partnership firms that satisfy any of the conditions below would be required to get 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.
  • Besides, 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.

Assessment of Partners

  • After the firm pays the tax, no tax will be payable by the partners on the share of income from the firm.

  • Interest amount or remuneration etc. received by a partner will be taxed as 'Business or Professional Income', excluding the amount disallowed in the hands of the firm being more than limits laid down in S. 40(b) and from A.Y. 2004-05 amount disallowed in the event of any failure as mentioned in S. 144 or non-compliance of S. 184.

  • The partner’s share (including a minor admitted for the benefit of the firm), in the income of the firm is not included in computing his total income i.e. his share in the total income of the firm shall be exempt from tax under section 10(2A) of the Act.