Which ITR to file for Partnership Firm?

As per the Income Tax Act, a partnership firm is ‘’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.’’ Just like individuals, HUFs and companies, partnership firms are also liable to pay income tax. This article will help you understand various aspects related to filing ITR for a Partnership Firm

Tax Rates for Partnership Firm

Partnership firms are liable to pay income tax at the rate of 30% on the total annual income. Apart from this, if the total income exceeds INR 1 crore, then the firm is also liable to pay a surcharge at the rate of 12%. The partnership firm must also pay education and secondary education cess in addition to income tax and surcharge.  The education and secondary education cess is 2% and 1% respectively.

A partnership firm, registered or unregistered is also suppose to pay alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Audit Requirement for Partnership Firm

A partnership firm will require an audit if they fall under the following category:

  • Carrying out a business and if total sales exceed INR 1 crore in the previous year.
  • Carrying on a profession and gross receipts in the profession exceed INR 50 lakhs in any previous year.

Income Tax Calculation for Partnership Firm

When calculating the total taxable income, the firm must also take into account certain deductions that they can claim while filing their return:

  • Remuneration or interest paid to the partners which are not in accordance with the terms of the partnership deed
  • If remuneration paid to partners is in accordance with the terms of the partnership deed but such transactions were made or were in relation to anything that pre-dates the partnership deed.
  • Salary, bonus, commission, or remuneration paid to non-working partners.

ITR Form for a Partnership Firm

Partnership firms for filing income tax returns have to file form ITR 5. Firms can file the return via Income Tax Department’s e-filing portal. One does not need to attach any supporting documents while filing ITR but if requested by the ITD, then they have to be submitted. It is not compulsory for a partnership firm to file an income tax return online if it does not require a tax audit. Moreover while filing the return, the partners must have a class 2 digital signature for the verification process.

It is important to not that ITR 5 is for filing the return for the partnership firm only and not for the partners, they have to file ITR 3.

Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

Tax Due Dates for Partnership Firm

The due dates for filing return for a proprietorship firm depend on tax audit applicability:

  • 31St July: For proprietorship firm where tax audit is not necessary
  • 30th September: For proprietorship firm where tax audit is necessary
  • 30th November: For proprietorship firm who have international transactions for business purpose

FAQs

Is a digital signature mandatory for ITR filing of partnership?

Yes, in case of online filing of ITR, the digital signature of the partners is mandatory.

Is it compulsory for a partnership firm to file ITR online?

If a tax audit is not necessary then it is not compulsory to file ITR online.

Got Questions? Ask Away!

  1. Hey @TeamQuicko

    Thanks for the blog! Just one quick question - Why do we have to report a quarterly breakdown of Dividend Income under IFOS?

    Thank you!

  2. I had received dividend recently but I had noticed that TDS had been deducted. any idea as to why has it happened and is there a way I can claim this TDS?

  3. Hey @HarshitShah

    After the introduction of Budget 2020, dividend income is now taxable in the hands of the shareholder; and is also subject to TDS at 10% in excess of INR 5000 u/s 194 & 194K. Foreign Dividend is taxable at slab rates. TDS is not applicable to such dividends. The taxpayer should report such income under the head IFOS in the ITR filed on the Income Tax Website.

    Hope this helps!

  4. Hi @ameyj

    The amount of TDS deducted shall reflect in your Form 26AS only and it will also reflect the name of the deductor.
    Using the name of the deductor you can find out on which share you have received the dividend and you can also cross-check the same in your bank statement.

    Yes, you are right, TDS is to be deducted when the dividend paid exceeds 5000 INR in a financial year. However, the 5,000 INR limit pertains to all the dividends an individual gets in a year, or the total dividend per shareholder that a company pays out in a year, is left to interpretation, and hence registrars and share transfer agents (RTA) are not taking any chances and are deducting TDS even on small amounts.

    Hope this helps

  5. Hi @TeamQuicko

    Consider that I have 10 shares each of 10 different Indian companies. Each of the 10 companies are declaring a dividend of INR 100 before the FY ends. Now I will be recieving 1000 as dividend from each company, thereby a total of 10,000.

    The 5,000 dividend limit, is it applicable to each company / total dividend recieved by me in a year. If it is applicable to each company, then I would not attract TDS of 10% for dividend.

    Also pl clarify, how would the company B know that I have got shares of Company A,C,D,E so on…

  6. Hey @Abdul_Kaleem_shah

    As per sec.194 of income tax act, TDS liability will arise when the amount of such dividend or the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, exceeds 5000 Rs.

    Here, the term company not includes aggregate companies and hence limit of 5000 Rs. should be applicable to each company.

    Here, you can read below article covering TDS on dividend income:

    Since, it is purely based on interpretation and ambiguous as opinion vary from experts.

  7. Hey @TeamQuicko

    I tried to file ITR-3 via Quicko’s integration with Zerodha. While filing the ITR, I got an option to switch to the New Tax regime to save additional taxes.
    Since I had some turnover from intraday and FnO (speculative/ business), am I eligible to switch to the new regime through Quicko while filing?
    How do I fill the Form 10-IE? If I haven’t filled the form, would the portal preent me from filing returns altogether?
    Also, once I get rebate (if opted for new regime) / pay dues (if opted for old regime), do I need to go through the hassles of replicating it on the new ITR portal (i.e manually answering the schedule sections)?

    Kind regards

  8. Hi @ChinmayB,

    Yes, you can opt for the new tax regime. However, keep in mind in case a taxpayer has business income and they opt for the new tax regime, they can switch to the old tax regime only once.

    If you opt for the new tax regime, you need to file Form 10-IE before filing the ITR

    Here’s how you can file the Form 10-IE

    When filing your ITR through Quicko, you do not need to enter details on the new ITR portal, since Quicko is a ERI (e-return intermediary) registered with the Income Tax Department.

    Note: ITR filing will be enabled on Quicko in the coming week. So stay tuned for more exciting features!

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