What Is Partnership Firm Compliance?

In India, a partnership firm entails certain financial and legal responsibilities. Compliance with a range of tax and regulatory requirements is vital to the smooth running and growth of your organization. Filing of income tax return, TDS return, GST return, EPF return and in some cases, tax audit, etc.

Very few partnership firm registrations online are issued under the partnership firm while establishing a business in India. These companies are similar to the LLP and registered companies and must be compliant. Regulation of a partnership firm, i.e., regulated by the Partnership Act, 1932. In addition, apart from general compliance, TDS, GST, ESI, etc., compliance may also be required. The compliance needs vary by entity type, industry, state of incorporation, employee number, and sales turnover.

Partnership Firms Need To Follow:

• Filing of GST Return every month or every quarter (if applicable under Goods & Services tax).
• TDS Payment (Monthly) and TDS Return Filing (Quarterly).
• Filing of monthly ESI and EPF returns
• Filing of Income Tax Return (ITR) of Partnership Firm.
• Filing of Income Tax Return (ITR) for individual partners.
• A. Certified Audit Report.

Benefits Of Partnership Firm Compliance In India

Legal Credibility: Timely compliance establishes a favorable track record for Partnership Firms within the legal framework.

Penalty Avoidance: Avoiding hefty penalties and stringent consequences through consistent adherence to regulations.

Enhanced Borrowing Opportunities: Partnership Firms with a history of regular compliance find it easier to secure loans and financial support.

Expedited Approvals: Swift approval processes for new ventures, including Joint Ventures with foreign entities, thanks to a clean legal image.

Taxation Benefits: Partners can avoid personal tax implications and the burdens of heavy income tax penalties and inquiries.

Income Taxation For Patnership Firms:

• Separate Entity: As per the Income Tax Act, 1961, a partnership firm is a separately taxable person.
• Tax Rate: The firm is taxed at a flat rate of 30% on its income.
• A 12% surcharge applies in the case of firms where the income exceeds ₹1 crore.
• There is also a 4% health and education cess applied to the tax.
• Profit Distribution: Profits allocated to the partners are not taxed at the firm level but instead are taxed on the partners' hands depending on their portion.
• Tax Deducted at Source (TDS): In partnership firm tax e filling, they must deduct TDS from a number of payments, such as salaries, interest, rent, etc., if they exceed the limits prescribed.
• Audit Requirement: If the turnover of the firm is more than ₹1 crore (if the business can opt for presumptive taxation under 44AD, it is ₹50 lakh), the tax audit is compulsory u/s 44AB.
• Filing Returns: Partnership firms in India(other than LLPs) are required to file income tax returns annually in ITR 5.
• Presumptive Taxation: Businesses with turnover under ₹2 crore can avail presumptive taxation under Section 44AD, wherein 8% of turnover is treated as taxable income.

List Of Documents For Partnership Firm Registration Online:

• Partnership Deed: The legally binding document that establishes the terms by which the partnership will operate, including the profit-sharing ratio and the duties and responsibilities of each partner.

• Partnership Firm’s PAN Card: The Permanent Account Number (PAN) of the partnership firm is needed for taxation and other legal purposes.

• GST Registration Certificate: GST registration is mandatory if the firm’s turnover exceeds the limit prescribed.

• Bank Account Statement: They should get a separate bank account in the name of the firm.

• Address Proof of the Firm: An agreement of rent, utility bill, or property documents to show the address of the business.

• Identity Proof of Partners: Individual partners Aadhaar card, PAN card, or passport.

• Proof of Business Ownership: Documents like rent agreement, lease agreement, or property title to confirm the firm’s premises;

• Audit Reports (where applicable): If the turnover of the firm is greater than ₹1 crore, the audit report under Section 44AB is required to be filed.

Step-By-Step Guide For Partnership Firm Registration Online

Step 1: Draft a Partnership Deed:

Draft a written partnership deed mentioning the profit-sharing ratio, roles of partners, and working of the business.

Step 2: Obtain PAN and TAN:

Obtain the firm’s permanent account number (PAN) and tax deduction and collection account number (TAN) for tax purposes.

Step 3: Register the Firm (Optional):

In addition to what is optional but recommended, register the partnership with the Registrar of Firms to give it legal recognition.

Step 4: GST Registration:

Register for GST if turnover exceeds threshold limits (₹40 lakh for goods and ₹20 lakh for services)

Step 5: Open a bank account:

All financial transactions should be via a separate business bank account in the firm’s name.

Step 6: Maintain Books of Accounts:

Maintain a proper record of business transactions in accordance with accounting principles.

Step 7: Comply with taxation:

Prepare and file annual income tax returns (ITR-5) and ensure that all TDS obligations are met.

Step 8: Perform Tax Audit (If Required):

If turnover crosses ₹1 crore, get your tax audited under Section 44AB