10 things to remember while filing Partnership firms tax return

A partnership firm is required to file it’s annual income tax return with government for each financial year. It has to be filed irrespective of loss or profit of the partnership firm.

If the firm has no business and it’s just started the business, then also annual return of income has to be filed with tax department. Filing return of income with tax department is a mandatory requirement of a partnership firm.

Which ITR form to be filed

Partnership firm has to file ITR-5 online with the government for filing income tax return. You should not use any other form. In case it’s used, the form may get rejected.

To simplify the process of filing, CBDT may change the form or can make amendments to the existing form. You are suggested to visit income tax department site 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 to file your return of income. But, if you are planning to do it yourself, here are top 10 things you should remember while filing income tax return of a Partnership firm.

Partner’s details

You are required to submit following details of partners while filing ITR-5 with 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.

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.

Nature of business

Nature of business is one of the most important information which you should provide correctly while filing ITR-5. Based on this nature of business, certain tax provisions will be applicable to you.

For instance, if you are preparing ITR-5 for your partnership firm which is providing professional services on accounting, book-keeping and auditing profession, 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 to your type of business.

ITR-5 has given a detail list of nature of business. But if you did not find one that suits your business most then you can select other category 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 if you have given firm’s PAN to the deductor and he has filed TDS return with your PAN.

Before filing your firm’s 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 basis to match it with form 26AS before filing return of income. You can maintain this excel sheet when you received payments from a party after deduction of tax.

Excel sheet will be a great help if its maintained with 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 return of income, 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 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 income tax website by logging into your account, then all the TDS details available in form 26AS will get auto-populated in the ITR-5.

Incase 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.

Bank account details

Details of all accounts in the name of partnership firm have to be furnished with the IFS Code of the bank branches, Account number and name of the bank.

If any account is in dormant status and not used for business of 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 head “income from other sources.”

Audit Information

If the partnership firm is liable for audit under section 44AB of 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 ITR;

  • Date of furnishing the audit report
  • Name of the auditor signing the tax audit report
  • Membership number
  • Name of the chartered accountant firm
  • Firm registration number
  • Permanent account number of the firm or proprietor
  • Date of audit report

If you are filing partnership firm’s tax return on your own instead of taking help of the chartered accountant who has done tax audit, then make sure that you have above information in hand before preparing ITR-5.

If the firm is required to be audited under some other section of income tax act then below above information, you have option of selecting the section under which audit has been carried on and the date of furnished such audit report.

Whether Books of account maintained?

On the first page of ITR-5, you need to fill up 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 its 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 profit and loss account and balance sheet section below.

Depreciation charged to the firm

For assets that are used in the business of the firm, you are eligible to claim depreciation as per tax law. 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 part while filing 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 firm can be carried forwarded to the current year in case you have fulfilled all the terms and conditions of tax laws. If you do not mention that in 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 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 firm is eligible to carry forward losses or not.

Profit and loss account of the partnership firm

If regular books of account is 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 filed up under the head Other expenses by specifying the nature and amount.

After filing 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 its 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 its applicable and you have not entered profit and loss account details in ITR-5 then your tax return may get rejected or sent you back for rectification.

Balance sheet of the partnership firm

You have two choices here. If you are 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 ITR-5 is filed;

  • Total of sundry debtors
  • Total of sundry creditors
  • Total of stock-in-trade
  • Cash balance

However, while filing these information, you need to make sure whether your partnership firm is required to maintain books of account or not.

In addition to above top 10 things, you are also required to fill up all most 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 tax return, you are required to generate XML file for uploading. The XML file can be uploaded to 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 return of income with tax department on or before the due date of filing.

For better compliance and error free filing, we suggest you to take help of a finance professional or tax expert to file your partnership firm’s tax return on your behalf. These professionals knows plenty of strategies to minimize your tax liability through proper planning and is 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.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.