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Income Tax Return Filing for a Partnership Firm in India

Q: How are the partners taxed on their share of profit from the firm?

Partners are generally taxed on their share of profit from the firm based on the firm's tax liability first, and then the partners' individual tax liability on their share. Firm's Taxation: The partnership firm is treated as a separate entity for tax purposes. It pays income tax on its total income at a flat rate (currently 30% plus surcharge and cess). Partners' Taxation: Once the firm has paid tax on its profits, the partners' share of profit is exempt from tax in the hands of the partners under Section 10(2A) of the Income Tax Act, 1961. This is to avoid double taxation. Other Payments to Partners: However, any salary, interest on capital, or commission paid by the firm to its partners (within the limits allowed by the Income Tax Act) is deductible as an expense for the firm and taxable in the hands of the individual partners.

Q: Can a partnership firm revise its income tax return?

Yes, a partnership firm can revise its income tax return. If a firm discovers any omission or wrong statement in its original return after it has been filed, it can file a revised return under Section 139(5) of the Income Tax Act, 1961. This revised return must be filed: Before the end of the relevant assessment year, or Before the completion of the assessment, whichever is earlier.

Q: What is the difference between a partnership firm and an LLP for tax purposes?

While both are common business structures, there are key differences in how a partnership firm and a Limited Liability Partnership (LLP) are treated for tax purposes: Feature Partnership Firm Limited Liability Partnership (LLP) Governing Act Indian Partnership Act, 1932 Limited Liability Partnership Act, 2008 Separate Legal Entity No (partners and firm are not distinct) Yes (LLP is a separate legal entity from its partners) Liability of Partners Unlimited (personal assets can be at risk) Limited (liability limited to their agreed contribution, except in cases of fraud) Tax Rate Flat rate of 30% (plus surcharge and cess) on the total income of the firm. Flat rate of 30% (plus surcharge and cess) on the total income of the LLP. Taxation of Partner's Share of Profit Exempt in the hands of partners (under Section 10(2A)) Exempt in the hands of partners (similar to a partnership firm) Deductibility of Partner's Salary/Interest Allowed as a deduction for the firm (subject to limits), taxable for partners. Allowed as a deduction for the LLP (subject to limits), taxable for partners. Audit Requirement Mandatory if turnover exceeds specified limits. Mandatory if turnover exceeds specified limits (currently Rs. 40 lakhs or contribution exceeds Rs. 25 lakhs). Compliance Burden Relatively lower (fewer formal filings) Relatively higher (more formal filings with ROC)

Q: Which ITR form should a partnership firm use to file its return?

Partnership firms should generally use ITR-5. However, eligible firms (excluding LLPs) opting for the presumptive taxation scheme under Section 44AD or 44ADA can use ITR-4, provided their total income is within ₹50 lakh.

Q: Can a partnership firm opt for presumptive taxation under Section 44AD or 44ADA?

Yes, eligible partnership firms engaged in certain businesses or professions can opt for presumptive taxation under Section 44AD (for businesses) or Section 44ADA (for professionals), provided they meet the turnover and other conditions. Under this scheme, income is presumed at a specified percentage of turnover, and books of accounts/audit may not be required.

Q: Are partners required to file separate returns apart from the firm’s return?

Yes, each partner must file their individual income tax return disclosing: Their share of profit from the firm (exempt under Section 10(2A)), Any salary, interest, or commission received from the firm (taxable), Any other personal income, such as salary, house property, or capital gains.

Q: Is an audit compulsory for all partnership firms?

No, an audit under Section 44AB is compulsory only if the firm’s turnover exceeds: Rs. 1 crore in general business, or Rs. 10 crore if cash transactions do not exceed 5% of total receipts and payments. It is also mandatory for professional firms if gross receipts exceed Rs. 50 lakh.

Q: How can a partnership firm file its income tax return online?

The return can be filed online by: Logging into the Income Tax e-Filing Portal. Selecting ‘File Income Tax Return’, choosing AY 2025–26, and selecting Form ITR-5. Filling in the necessary details, uploading any required schedules/forms (e.g., audit reports), and submitting using a Digital Signature Certificate (DSC), which is mandatory for firms subject to a tax audit. Firms not subject to an audit can also verify their return using an Electronic Verification Code (EVC).

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Frequently Asked Questions (FAQs)

Is it compulsory to file a tax return for a dormant partnership firm?

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Yes, even a dormant partnership firm is generally required to file an income tax return. While it may not have active business operations or significant income, the Income Tax Act, 1961, mandates all firms to file a return, especially if they are registered. This ensures compliance and provides a record of the firm's status.

How are the partners taxed on their share of profit from the firm?

Can a partnership firm revise its income tax return?

What is the difference between a partnership firm and an LLP for tax purposes?

Which ITR form should a partnership firm use to file its return?

Can a partnership firm opt for presumptive taxation under Section 44AD or 44ADA?

Are partners required to file separate returns apart from the firm’s return?

Is an audit compulsory for all partnership firms?

How can a partnership firm file its income tax return online?

Why Choose RegisterKaro for Filing ITR for a Partnership Firm?

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Why Choose RegisterKaro for Filing ITR for a Partnership Firm?

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