Partnership mainly refers to an agreement between two or more people who have assigned themselves to run a business together and share the profit equally among all the partners. In India, partnership firm has eventually benefitted more to the people and there has been a drastic decrease in the limited liability partnership, LLP. The laws are less, the policies are less of concern, and the exposure is more. But, what really makes the partnership firm easy and more relaxing? To understand this, we need to have a clear picture of what actually partnership has to offer the business world?
Unlike the private limited company and liability limited partnership, the partnership firm solely depends and are run by the partners themselves. There isn’t any rule, regulations, or proper agenda to be fulfilled. The partners will work according to their interest and own targets. But also, the profits and debts are required to share along too. This is when the real problem starts if your partners and you aren’t working on audit requirement partnership firms or mandatory compliances for partnership firms. Hence, small or big, two or four partners, having a compliance registered under the registrar office, signed by the directory are a very crucial document and must be agreed under all the partners’ presence. To know more, let us go deeper.
The annual compliance for partnership firms usually consists of 3 major parts:
If compliance is meant to be understood in a simple word then it means to carry on with your business under all the rules, policies, and by the law. The annual compliance for partnership firm is important, as it obligates the people to work systematically and in a proper format. Many new businesses find it difficult to work as per the business standard. The compliance law makes it easy for them to cop up with all the problems, consequences, and probabilities so that they can take care of the business.
Filing of Return of Income
It is mandatory for every partnership firm to file the return of income nevertheless the total amount of revenue is a loss or profitable ones. A company can file its return on revenue in ITR 5. ITR 5 is for people except:
Also, it is mandatory for a partnership firm compliance to file the return of income electronically with or without a digital signature. A partnership firm can also file a return of income under Electronic Verification Code. However, an audit requirement partnership firms shall provide the return electronically with the digital signature.
The Return Forms are filed with the Income Tax Department in following ways, –
To make it short and simple below is the summarized process of annual compliance that must be carried by the entire partnership firm:
A partnership firms compliance has taken over the business world very rapidly that more and more people are getting into the partnership business. It is more trustful, less-complex, and the amount of dedication to the work is always immense. On top of that, they are easy to start in an unorganized sector where one doesn’t have any foothold in the process of their business firm. When thought about the Limited Liability partnership program, they are gradually losing interest due to limited offers and advantages it has to offer the business associates. The annual compliance for partnership firms can be divided into two categories, registered and unregistered partnership firms. To become a fully registered firm, the partners have to comply with Section 58 of the Partnership Act, 1932. But, it isn’t mandatory to file your partnership firm. Yet, there are more advantages to gain once you register your business.
The Partnership firms compliance must file their annual tax returns at the Income Tax Department. Other tax compliances like VAT or service tax filing might be necessary depending upon the business accomplished and the landscape of the firm. A partnership firm does not owe a favour while they file its annual accounts with the Registrar each year as the Limited Liability Partnership or a Company does. The Partnerships can be audited each year for their financial statements. However, a tax audit might get important once the turnover or other criteria changes.
The annual compliance for Partnership firm is a whole lot separate unit to carry on with the taxation services. It is not compulsory for the partners to be registered. So partnership firm is taxed under the income tax block for firms and the partners are taxed under the income tax block for individuals.
Attaining Permanent Account Number and Tax Deduction Account Number registration from the Income Tax Department by any Partnership Firm from the significant Authorities after the registration of the Partnership Firm is necessary.
In the partnership firm compliance, the rate of income tax on the total income of the firm will be 30% extra on the income tax. The amount of income-tax calculated or the provisions of section 111A or section 112 of the Income Tax Act, 1961 shall, in the case of every firm, having a total income exceeding one crore rupees must be increased by an addition for the purpose of the Union calculated at the rate of 12%, of such income-tax only when the firm bears a total income that exceeds one crore rupees, the total amount payable as income-tax and extra charge on such incomes must not exceed the total amount to be paid as income-tax on a total income of one crore rupees by more than the amount of income that surpasses one crore rupees.
When it comes to the mode of paying the tax by a partnership firm, it can be stated that taxes can be paid in any of following modes:
An audit requirement partnership firms are required to get their accounts audited under the Income Tax Act, 1961 or under any other law, the due date will be 30th September of the assessment year. In case of emergency or exceptional situation, it will be July 31 of the assessment year.
The advantages of annual compliance for Partnership Firms are that they can be easily started, require nominal compliance requirements, comparatively inexpensive and annual filing is not mandatory. But on the other hand, Partnership firms bring unlimited liability and partners are personally responsible for the acts of the firm. All the partners are equally liable for the debt of the firm. They can easily share the liability with each other or anyone can pay all the debts even from his/her personal properties.
By observing the importance of partnership firm compliances, it can be concluded that partnership firms do not have ideal compliance requirements. To enforce an efficient compliance with the law or mandatory compliances for a partnership firms, more compliance can be enforced on such firms. These compliances can differ depending on the nature of the businesses. Labour Laws such as Provident Fund Act, 1952, Employees State Insurance, 1948, Minimum Wages Act, 1948, and Factories Act, 1948 can be counted in for compliance purposes. Varied compliances can be included such as compliance with Shops & Establishments Act, IPR Protection procedures, and Pollution Control Laws. In addition to this, Partnership firms can be obligated to maintain books of accounts, audit requirement partnership firms, and registers, etc.
Hence, we can conclude by the statement that mandatory compliance for Partnership firms do not have ideal annual compliance for well-organized conformism with the law, and more compliance requirements can be enforced to make it stricter and more efficient in structure.
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