Partnership Firm Compliance

Essential Partnership Compliances to be followed by Partnership Firms

Compliances are the obligatory procedures that a partnership firm in India must undertake in order to function lawfully and efficiently. These measures guarantee that the organization complies with many regulations established by governmental bodies and other authoritative entities. Compliances for Partnership Firms support a variety of business activities and contribute to the public image of the firm's credibility and transparency. 

While firm registration in India is not required, doing so would provide numerous benefits. The formation of partnership firms in India occurs when the partners collaboratively compose the Partnership Deed. Lawgical Adda is here to provide an overview of the Partnership Firm Compliances in India:

What is a Partnership Firm?

In India, a partnership firm is a form of business organization in which two or more individuals collaborate for the purpose of profitably managing and operating a business. The partners contribute capital, share responsibilities, risks, and profits in accordance with the provisions of the partnership agreement in a partnership firm. 

The aforementioned business arrangement is regulated by the Indian Partnership Act of 1932, which delineates the rights, responsibilities, and obligations of partners. In contrast to a corporation, a partnership firm lacks independent legal existence; additionally, the partners bear responsibility for the financial obligations and liabilities of the enterprise.

Particular Compliance Requirements for Partnership Firms

1. A firm must be registered within a one-year timeframe.

2. Alteration of the Firm's Name, Principal Place, or Nature of Business, subject to a ninety-day notice period.

3. Branch closures and reopenings are subject to a 90-day time constraint.

4. Compliance with a 90-day deadline for changes to the name or address of the partner.

5. Amendment to the Constitution or Dissolution, subject to a 90-day notice period.

6. When a minor attains majority status and, within a ninety-day period, decides whether or not to become a partner.

7. The Process of Filing an Income Return for Tax Compliance

Complying with Income Tax Regulations:

1. Each partnership firm must possess a Permanent Account Number (PAN) to operate. The Income Tax Department issues Permanent Account Numbers (PANs) to all partnership firms. In tax matters, this unique identifier is crucial. It ensures transparency, is utilized for submitting tax returns, and tracks financial transactions.
2. Partnership firms are obligated to submit an Income Tax Return (ITR) regardless of their profit or loss. ITR-5 is the designated form for them. This ITR details the firm's comprehensive income, expenses, deductions, and tax obligations. ITRs filed promptly promote transparency and prevent late filing penalties.
3. Partnership firms' total income is subject to a uniform 30% tax rate. Nevertheless, the profit/loss distribution among partners is detailed on their respective tax returns, and their tax liability is determined by their respective income tax brackets. This assures a just allocation of the tax liability in accordance with each partner's income level.

Selecting the Appropriate ITR Form:

1. ITR-4: This form is suitable for organizations that have accumulated a maximum of ₹50 lakh in total income, reported on a presumptive basis. Presumptive taxation provides a simplified approach to determining taxable income, which utilizes an estimated profit margin for particular business categories.
2. ITR-5: Required for organizations with a revenue of ₹1 crore or more, or those subject to a tax audit. The ITR-5 is a more extensive form that requests specific information regarding income and expenditures.

Compliance with GST:

To comply with the Goods and Services Tax (GST), partnership firms that generate an annual revenue surpassing ₹40 lakh (subject to change) are obligated to register and file returns. GST is a tax levied on the provision of products and services at the point of delivery. Registered businesses must file regular GST returns:

1. GSTR-1: This monthly return documents the company's expenditures on external supplies. For a given month, the consolidated return GSTR-3B provides a summary of the firm's tax liability.
2. GSTR-9: The annual return, GSTR-9, offers an exhaustive summary of the firm's goods and services tax (GST) transactions over the course of the fiscal year.

Additional compliance

TDS return submission

In the capacity of deductors (with a valid TAN), partnership firms are obligated to withhold tax at source (TDS) on particular payments that surpass specified thresholds. This includes rent, interest, and professional fees, among other payments. TDS challans must be submitted to government authorities within the specified periods. Various types of payments necessitate using distinct forms for TDS returns (e.g., Form 26QB for immovable property transactions and Form 24Q for salary).

Return submission for the EPF

Partnership organizations with 20 or more employees must enroll in the Employee Provident Fund (EPF) program. This program requires employees to consistently submit EPF challans, thereby contributing to their retirement funds.

Bookkeeping and Accounting

In the event that their annual sales, turnover, or gross receipts surpass ₹25 lahks, or if their income from business exceeds ₹2.5 lahks in any of the three fiscal years prior, partnership firms are obligated to uphold accurate books of accounts.

Tax Analysis

Partnership firms that generated a total business turnover of ₹1 crore or more during the preceding fiscal year are typically obligated to endure a tax audit conducted by a Chartered Accountant. Subject to confirmation in forthcoming budgets, this threshold could be raised to 10 crore if financial inflows are restricted to 5% of the total revenue or turnover. An external tax auditor evaluates an organisation's financial statements and verifies compliance with tax regulations.

Premonition of Changes

Any alterations to the partnership deed, including changes in capital contributions, partner additions or removals, or dissolution, are required to notify the Registrar of Firms within 90 days. Other modifications include:

1. Alteration of the nature of the business, principal site of operation, or firm name.
2. Notification of branch openings and closings.
3. Alteration of partner details, such as an updated name or address.
4. Alterations to the partnership agreement or the firm's dissolution.

Miscellaneous

Such organizations may be required to comply with the law more stringently to ensure efficient adherence. The specific compliance requirements may differ based on the type of enterprise. In consideration of the Customs Act of 1962, Wealth Tax of 1957, Excise Duties, Service Tax, and Local taxes, compliance measures may be executed.  For compliance purposes, labor laws such as the Provident Fund Act of 1952, the Employees State Insurance Act of 1948, the Minimum Wages Act of 1948, and the Factories Act of 1948 may be incorporated. Inclusion may be made of miscellaneous compliances, such as that pertaining to the Shops & Establishments Act, IPR Protection procedures, and Pollution Control Laws. Moreover, partnership organizations may be required to uphold records of accounts and registers, among other duties.

Our team at Lawgical Adda will review the task; as a result, you will receive expert guidance outlining a professional strategy for achieving Partnership Firm Compliance, including its timelines and next steps. Following a review of your specifications, we shall generate the paperwork pertaining to Partnership Firm Compliance. Following the conclusion of all formalities and procedures, our specialist will coordinate the submission of required documents, returns, and forms with the jurisdictional Registrar of Firms (RoF) in approximately five to seven business days.