Compliances of Partnership Firms in India

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Compliances of Partnership Firms in India

The Partnership Act, of 1932 governs and regulates the partnership firm in India. The partnership firm is constituted under a contract between partners. This contract is known as a partnership deed which has all the information related to the partners and partnership firm.

However, the act consists of multiple rules and regulations that partnership firms have to follow. The rights and duties of members or partners among themselves, and other legal relations between partners and third persons. In the article, all the important compliances that a partnership firm must follow are mentioned. 

What is a Partnership Firm?

The partnership firm is one of the most popular forms of business organisation in India. It is popular because of its easy incorporation, less compliance, quick decision-making process, and others. To make a firm a minimum of two partners is required and a maximum of fifty. The partners establish a firm and share profits among themselves in the agreed ratio.

To set up a firm, partnership firm registration is required for legal status. Register the firm with the Registrar of Firms. However, registering a firm is not compulsory but it is advisable to register to get certain special rights and benefits as compared to the unregistered firms.

What is the Importance of Compliance?

To meet the legal obligations, following the compliances are required. A simple example of compliance is obtaining a business license and paying taxes, this is just one example. Adherence to rules, regulations and standards is important for every organisation regardless of its size, industry or location.

• Maintain Ethical Business: The compliances make sure that the business operates within the boundaries of the law and follows ethical business practices. This helps the firm from fines and legal repercussions.
• Minimise Risk and Protect Shareholders: By complying with the regulations you can protect employees and customers. This can include meeting the safety standards in the workplace, protecting privacy data, or ensuring the quality of products.
• Building Trust and Confidence: Following compliance with regulations and ethical standards is important to build stakeholder trust and confidence.
• Same Rules for Everyone: The same compliances make sure that every firm operates on the same rules and regulations that prevent unfair competition and promote a healthy environment for every firm to work.

Tax Compliance for Partnership Firm

Every partnership firm in India has to file income tax returns annually. It does not matter whether any business has been generated in that year or not. If the income is zero, then still it is mandatory to file a NIL income tax return. As per the provisions of the Income Tax Act 1961, the partnership firm must follow the tax percentages:

• The firms are liable to pay income tax at a rate of 30% on their taxable income.
• If the taxable income exceeds Rs. 1 crore then a surcharge of 12% is applicable in addition to the income tax.
• The firm can claim a deduction of 12% on the interest paid on capital.
• The 4% Health and Education Cess is levied on the total tax amount, including surcharges.
• If the net income exceeds Rs. 1 crore, then the income tax and surcharge payment should not exceed the total income tax payable on a total of 1 crore rupees.

Other Compliances of Partnership Firm

• The partnership firms have an annual turnover of Rs. 100 lakhs are required to obtain a tax audit.
• The businesses have annual turnover of more than Rs. 40 lakhs and Rs. 20 lakhs for North Eastern states. The GST registration is mandatory for them.
• Obtaining a Permanent Account Number (PAN) and Tax Deduction Account Number from the Income Tax Department is necessary.
• The partners do not need a Digital Signature Certificate (DSC), or Director Identification Number (DIN).
• Partners can introduce any change easily without much documentation.
• The registration process is cost-effective and cheaper. 
• Dissolution of the partnership firm does not require many legal formalities and is easy to dissolve.  

Documents Required for Annual Compliances

The following documents are required for annual compliance:

• Invoices of sales and purchases during the year.
• Bank statements of the bank accounts of the partners.
• Invoices of expenses made during a financial year.
• Copy of TDS returns filed.
• Copy of GST returns filed.

Conclusion

Following the compliances is crucial for partnership firms is crucial to adhere to the legal regulatory framework. The firm will not only avoid penalties and reputation damage by complying with the regulation but also build trust among shareholders, attract investment and create stable expansion for a foundation. If you are looking to register your partnership firm, then reach out to Registrationwala. We take care of the complete process from the application to finally obtaining the registration.

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