Partnership firm’s income tax return is required to be filed with the government on or before the due date of filing for each financial year. Income tax return (ITR) has to be filed irrespective of loss or profit of the partnership firm.
Filing of partnership firm’s income tax return with the tax department is mandatory. Annual income tax return has to be filed even if the partnership firm has no business or it has just started the business before the end of the financial year.
Which Income tax return (ITR) form a partnership firm should file?
Partnership firms’ income tax returns have to be filed online in form ITR-5.
You should not use any other ITR form except form ITR-5. If you use a ITR form other than ITR-5, then your partnership firms’ income tax return may get rejected as a defective return.
To simplify the process of filing, CBDT may change the form or can make amendments to the existing form. You are suggested to visit the income tax department’s e-filing portal to download the latest form applicable to a partnership firm instead of using any old form.
Form ITR-5 can also be used by a limited liability partnership or LLP, AOP, BOI, cooperative society, registered societies and local authority.
However, ITR-5 form can not be used by a company, individual and other person for whom specific form has been prescribed by the government.
You can take help of a tax expert to help you file your partnership firms’ income tax return.
But, if you are planning to do it yourself, here are top 10 things you should remember while filing your partnership firms’ income tax return.
Partners’ details in income tax return form ITR-5
You are required to submit following details of partners while filing partnership firms’ income tax return in form ITR-5 with the government;
- Name of the partner
- Address
- City
- State
- Country
- Percentage of shares
- Permanent account number
- Status code
In addition to above details of existing partners you are also required to submit details of partners with percentage of share if anyone has been admitted to or retired from the partnership.
You need to separately mention who is appointed as managing partner of the firm as per the deed signed. Managing partner mentioned in the partners details should be the signing authority of the ITR-5.
It’s a mandatory requirement and you need to provide correct details in it. If you are taking help of a chartered accountant or tax expert, then make sure he has correct details.
Partnership firms’ nature of business
Nature of business is one of the most important pieces of information which you should provide correctly while filing partnership firms’ income tax return in form ITR-5.
Based on the nature of business, certain tax provisions will be applicable to you.
For instance, if you are preparing income tax return form ITR-5 for your partnership firm which is providing professional services in accounting, book-keeping and auditing professions, then you can select code 16002.
Similarly, a tax consultancy professional firm can select code 16003. You need to make sure that you have selected a proper code which matches your type of business.
Income tax return form ITR-5 has given a detailed list of the nature of business. But if you did not find one that suits your business most then you can select other categories provided in the list.
TDS or tax credited to Partnership Firm
Credit of tax deducted at source on the income of partnership firm earned during the year must reflect in form 26AS and AIS if you have given your firm’s PAN to the deductor and he has filed TDS return showing the amount to be credited against your PAN.
Before filing your partnership firm’s income tax return, you first need to reconcile to know if any tax credit is missed out.
For this you have to prepare a statement preferably in excel on a daily or periodic basis to match it with form 26AS and AIS before filing firm’s return of income.
You can maintain this excel sheet when you receive payments from a party after deduction of tax.
Excel sheets will be a great help if they are maintained with the party name, TAN and PAN number of the person who has deducted it, Invoice amount, tax deducted and final payment received. You can also use any other software based on your preference.
At the time of preparation of your partnership firm’s income tax return, you should enter all the credit of tax deducted at source on the income earned during the year for arriving at the actual tax liability or tax refund, if any.
In case of mismatches, you should take up the matter with the party or banks or tax department based on your problem.
If you download the XML file from the income tax website by logging into your account, then all the TDS details available in form 26AS and AIS will get auto-populated in the income tax return form ITR-5.
In case you have paid any advance tax and/or are liable to pay any self assessment tax, then after making payment you need to fill up details such as BSR code, date of deposit, serial number of challan and amount paid. You can get these details from the challan receipt generated online.
Partnership firm’s bank account details
Details of all bank accounts in the name of partnership firm have to be furnished with the IFSC of the bank branches, Account number and name of the bank.
If any bank account is in dormant status and not used for business of the partnership firm, then it’s not required to be mentioned.
While submitting these bank account details, you should take into account the bank interest if any received from different deposits credited to these accounts under the heading “income from other sources.”
Partnership firm’s audit information
If the partnership firm is liable for under section 44AB of audit income tax act, 1961 and the accounts has been audited by a chartered accountant in practice, then following details are to be furnished in the income tax return;
- Date of furnishing the tax audit report
- Name of the auditor signing the tax audit report
- Membership number
- Name of the chartered accountant firm
- CA Firm registration number
- Permanent account number of the firm or proprietor
- Date of audit report
If you are filing a partnership firm’s income tax return on your own instead of taking help of the chartered accountant who has done tax audit, then make sure that you have the above information in hand before preparing form ITR-5.
If the partnership firm is required to be audited under some other section of income tax act then you have the option of selecting the section under which audit has been carried on and the date of furnishing such audit report.
Whether partnership firm’s Books of account are maintained?
On the first page of ITR-5, you need to fill in Yes or No to a question “whether liable to maintain accounts as per section 44AA”. You need to mention Yes, if section 44AA provision is applicable to you. If it’s not applicable then fill up No.
If you answer it as Yes, then you need to fill up Part A (sources of funds) and Part B (application of funds) of balance sheet in addition to all those fields that are required to be filled up in Part A (P&L) where regular books of account is to be maintained by the partnership firm.
If your answer to the question is No, then you need to fill up only those details that are required in no account case given in the balance sheet and profit and loss account sheet. We have discussed these details in the profit and loss account and balance sheet section below.
Depreciation charged to the partnership firm’s account
A partnership firm is eligible to claim depreciation as per the tax laws for assets that are used in the business of the firm. You can claim depreciation at the rate of 15%, 30% and 40% on plant and machinery based on the type of asset.
Similarly for building, furniture and fittings, intangible assets we have different rates. You need to fill up these details correctly with addition and subtraction if any. On land you can not claim any depreciation.
This is one of the most difficult parts while filing income tax return in form ITR-5, but if you have maintained your records correctly then it will not be that difficult.
If you do not know the provisions of income tax act to calculate depreciation, then take professional help or else you may be in trouble for providing wrong information in ITR-5.
Carry forward of losses, if any
Earlier year losses of partnership firms can be carried forward to the current year in case you have fulfilled all the terms and conditions of tax laws.
If you do not mention that in the income tax return form ITR-5, then such loss will not be considered by the tax return while calculating current year tax liability.
ITR-5 will be asking you to fill up assessment year wise losses carried forward.
You need to fill up the date of filing and loss type against the assessment year. ITR-5 will automatically set it off with the current year if applicable.
However, before entering these details you should know whether your partnership firm is eligible to carry forward losses or not.
Profit and loss account of the partnership firm
If regular books of account are maintained, then you need to fill up the debits and credits to profit and loss account under different heads as mentioned in the ITR-5. If you did not find any head for your expenses then details can be filled up under the head Other expenses by specifying the nature and amount.
After filling a profit and loss account, you need to make sure that the profit arrived at in ITR-5 is matching with the profit and loss account you prepared. If it’s not matching, then check if any expenses you missed out or amount has been entered wrongly.
In a case where regular books of account of business or profession is not maintained, you need to furnish following details instead of providing profit and loss account;
- Gross receipts for the year
- Gross profit
- Expenses
- Net profit
However, before giving above details for no account cases, you need to make sure that you are not liable to maintain books of account under income tax laws. In case it’s applicable and you have not entered profit and loss account details in income tax return form ITR-5 then your tax return may get rejected or sent back for rectification.
Balance sheet details of the partnership firm
You have two choices here. If the partnership firm is liable to maintain books of account as prescribed in section 44AA of income tax act 1961, then you need to fill up Part A (sources of funds) and part B (Application of funds) of the Balance sheet.
In a case where regular books of account of partnership business or profession are not maintained, you need to furnish following information as on 31st march of the previous year for which income tax return form ITR-5 is filed;
- Total of sundry debtors
- Total of sundry creditors
- Total of stock-in-trade
- Cash balance
However, while filing this information, you need to make sure whether your partnership firm is required to maintain books of account or not.
In addition to the above top 10 things, you are also required to fill up almost all the details correctly and accurately such as email ID, mobile number, address and section under which you are filing your partnership firm’s return of income.
After preparing your partnership firm’s income tax return, you are required to generate an XML file for uploading. The XML file can be uploaded to the tax department’s return filing website on or before the due date of filing.
Please remember, it does not matter whether your partnership firm is registered or unregistered. You have to file your annual income tax return with the tax department on or before the due date of filing.
For better compliance and error free filing, we suggest you take help of a finance professional or tax expert to file your partnership firm’s income tax return on your firm’s behalf. These professionals know plenty of strategies to minimize your tax liability through proper planning and are always informed about current changes to tax laws.
A chartered accountant in practice or lawyers or any other tax expert practicing in income tax matters can help you for filing.
