Partnership Firm Registration
The business own, run and managed by the two or more partners, then such type of entity is known as partnership firm. The registration under this entity is also optional. There is separate PAN card required apart from the partners of the firm and the liability of the partners is unlimited. It should ideally only be considered by small merchants and traders when run by two or more partners. In partnership firm there should be at least two persons coming together to form the partnership for a common goal. In other words, the minimum number of partners in a partnership firm can be two.
Indian Partnership Act, 1932 has put no limitation on maximum numbers of partners in a firm. But however, Indian Companies Act, 2013 puts a limit on a number of the partners in a firm as follow:
- For Banking Business, Partners must be less than or equal to 10.
- For Any Other Business, Partners must be less than or equal to 20.
- If the number of partners exceeds the limits, the partnership becomes illegal.
Partnership Firm Registration :-
The registration of Partnership firm is a Process of giving the firm a status of the Registered Legal entity in India. For Partnership Registration, you should search a firm name and after that build up an deed for the partners. It is a record expressing particular rights and commitments of the accomplices and to be legitimate it ought to be composed and not oral. The terms that are laid out in Partnership Deed can be fluctuated to suit the interests of the accomplices and can even be influenced in opposition to the Indian Partnership To act, 1932 however in the event that the Partnership Deed is quiet on any point, at that point the arrangements of the Partnership Act, 1932 would apply.
Process of Registration :-
- Initially, you need to create a Partnership deed and Get It signed by all The Partners in the organization and gather the legal documents of all partners. You have to apply before the Registrar of firms that are situated in the state where your partnership firm is located and make an Application in the Form no 1.
- Once you submit the application, the registrar of firms will scrutinise all the details and if he is satisfied, then a Certificate of Incorporation will be issued to you which means your partnership is registered.
Annual Compliance :
- Monthly/Quarterly/Annual GST return
- Income Tax Return
Tax Rate :
The partnership firm is liable to pay income tax @ 30 percent of its net income. An additional surcharge @12 percent will be payable when the income exceeds 1 crore. In addition to the income tax and surcharge, a partnership firm must pay education cess and secondary higher education cess as per the applicable rate on both tax as well as surcharge. At present education Cess is 3% and Secondary and higher education cess is 1%.
Income Tax Calculation for Partnership Firm
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 in accordance with the terms of the partnership deed.
- If remuneration or interest paid to the partners are in accordance with the terms of the partnership deed but they relate to any period prior to the date of the partnership deed.
- In addition to the above, interest paid to partners is in accordance with the terms of the partnership deed should not exceeds 12% per annum. Also, remuneration paid to partners should be in accordance with 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.
Income Tax Return Filing :
Partnership firms are required to file income tax return in form ITR 5. Like all other income tax forms, ITR 5 is an attachment less form and there is no requirement for submitting any documents or statements along with a partnership firm tax return. However, the taxpayer must save all records pertaining to the business and produce the same before tax authorities when requested. If the income tax return is filed online, then a class 3 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.
Partnership Firm Tax Return Due Date :
The due date for filing of Income tax return for partnership firms is July 31 of the assessment year. Partnership firms required to get its accounts audited under the income tax Act must file the income tax return before the 30th September.
Audit Requirement for Partnership Firms :
- Statutory audit will apply for carrying on business and total sales exceed Rs.1 crore in the previous year.
- Statutory audit will apply for carrying on a profession and gross receipts in profession exceed Rs.50 lakhs in any previous year.
- GST Audit will apply every year for those GST registered business (GSTIN) having turnover more than Rs 2 crores, by the sale of goods or services in the financial year.
Treatment of income in the hands of Partners :
- Remuneration and Interest received by the partners shall be taxed in their hands as income under head Profit and Gains from Business & Profession. Moreover, 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.
- In case the partnership firm is unable to pay the tax dues, the partners can be held liable for recovery of the tax dues.