Partnership registration and tax compliances required

how to register partnership firm

How to start a partnership business with the legal framework?

What is a partnership deed?

A partnership business can be started with a minimum of two partners, all the partners should be Indian citizens and should have attained the age of 18 as of the date of admission to the partnership firm.

A partnership deed is a legal document drafted as per the Partnership Act 1932, considering the requirements of the Income Tax Act 1961 and other regulations.

Contents of the partnership deed are listed as clauses in which each clause provides specific information, rules, and regulations, some of the important contents are provided below.

What details are required to be included in the partnership deed?

  • Date of commencement of partnership business
  • List of partners
  • Profit sharing ratios and investment of each partner
  • The registered address of the partnership business
  • Nature of business
  • Name of the partnership firm
  • Mode of operation of bank accounts
  • The interest rate for capital and additional capital.
  • Rules and regulations for admission of new partner and retirement of existing partner.
  • Duration of the partnership firm.

Once the partnership deed is drafted with all the important legal requirements, it is executed on stamp paper of Rs.300 and is to be signed by all the partners and two witnesses.

How to register a partnership firm in Chennai?

As per the Indian Partnership Act 1932 registration of a partnership firm is not mandatory, the partnership firm comes into existence once the partnership deed is drafted and signed by all partners and witnesses.

Only Partnership Act 1932 does not require partnership firms to be registered, however for the purpose of bank account opening, transacting with third parties, government tenders, and application for a bank loan requires registration of partnership firm.

The partnership deed registration in Chennai is applied with the registrar of firms of the respective jurisdiction, for firm registration in Chennai there are three zones Chennai South, Chennai north zone, and Chennai Central Zone, your firm registration application can be submitted with the support of partnership registration consultant in Chennai.

Documents required for partnership firm registration?

  • Partnership deed
  • Aadhaar card of all partners
  • Partnership registration application form
  • Registered E-mail ID and mobile no.
  • Personal E-Mail ID and mobile no of all partners.

Partnership registration is applied online and acknowledgment with prescribed documents is submitted to the registrar of the firms for approval on payment of government fees. The application will be approved after the verification by the registrar of firms and a digitally signed acknowledgment for registration of firms will be issued by the registrar in FORM-C. This form C is generally called a partnership firm registration certificate, and it is to be kept valid by filing the annual return for the partnership firm.

A partnership firm is a distinct person, so the PAN number shall be applied once the partnership deed is executed, PAN number application can be made by submitting FORM 49A along with the partnership deed. The pan number allotted, and the same shall be used for income tax return filing for partnership firms, GST registration for partnership firms, and other tax and legal registration and compliances required.

What are the periodical return and renewal forms required to be filed for a partnership firm?

After the registration of the partnership firm with the registrar of firms and obtaining the firm registration certificate for the partnership firm, an annual return shall be filed for every financial year within the due date, failure to file an annual return will attract a penalty.  The annual return shall be filed with details such as the admission of a new partner, the retirement of a partner, changes in profit-sharing ratios, details regarding changes in the nature of business, etc.

Amendment in any of the clauses of the partnership deed shall be filed with the registrar of firms in a prescribed form, after such amendment.

Renewal and filing of details of the amendment are important, and the statement in FORM-A is required to be submitted by a partnership firm in certain cases to third parties. FORM-A contains all the information relating to the date of the partnership, changes in partners, and particulars regarding the filing of annual returns.

How to amend the partnership deed?

Any changes in the clause of a partnership deed are required to carry out only through the execution of the amendment deed to be signed by all the partners and witnessed by at least two persons. The amendment deed should be given reference to all the previous original partnership deeds and previous amendments deeds. Some of the situations and types of amendment deeds required.

  • New partner admission deed
  • Existing partner retirement deed
  • Partnership amendment deed for change in profit sharing ratio
  • Amendment deed for change in the business address of the partnership firm

The partnership amendment deed in Chennai is to be executed on 100 Rs stamp paper.

 Is GST mandatory for partnership firms?

GST registration in Chennai for partnership firms is not mandatory unless it crosses 20 lakhs in case the firm is engaged in the supply of services, in case of exclusive supply of goods the limit shall be Rs.40,00,000 of the turnover limit. In the case of certain kinds of business, GST registration is mandatory irrelevant of the turnover, the detailed discussion on compulsory GST registration is available in Guide on GST Registration in India.

When to file Income tax returns?

Income tax return filing for partnership firms is mandatory for partnership firms, irrespective of their turnover and business activity. The basic exemption limit is not applicable to partnership firms and profits are taxable at the flat rate of 30 % plus applicable educational cess and surcharge.

The benefit of presumptive taxation U/s 44AD and 44ADA are applicable to partnership firms, therefore if turnover is up to 2 crores minimum profit of 8 % (for case transactions) or 6 % (for transactions through banking mode) of turnover can be declared, and respective tax shall be paid, in case of notified professionals if turnover is up to 50 lakhs the profit shall be declared at 50 % of turnover.

TAX audit is applicable only when the profits less than the prescribed % are to be declared as per Section 44AD and 44ADA. In the case of businesses other than notified professions, if turnover is up to Rs.1 crores still profits below the prescribed percentage can be declared without audit.

Profit for the partnership firm is calculated only after deduction remuneration and interest paid to partners as per Income TAX Act 1961.

List of frequently applicable TDS provisions for partnership firm

TDS provisions are applicable for partnership firms without any threshold limit of turnover.

Section 192 -Salaries – Rate as applicable to employees. 
A partnership firm is liable to deduct TDS if the employee estimated income crosses the basic exemption limit as provided in the financial year, and the employer can consider Chapter VI-A deductions and loss from house property only. The employer is bound to include other income of the employee if it was declared in form 12BB for continuing employees and form 12B for new employees joined in between.

The rate of TDS: As applicable to the employee.

Section 194A – TDS on interest other than securities – Rate @ 10 % if interest exceeds Rs.10,000.
TDS at the rate of 10 % shall be deducted on payments of interest of more than 10,000 in aggregate during the financial year

Section 194C – TDS on contract payments at 1 % if payment/credit is made to individuals or HUF and 2 % for other people. 

Limit – Rs.30,000 for a single transaction during the financial year through any mode of payment/credit.
Rs.1,00,000 In case of the aggregate total during the financial year

194I – TDS on rent: 10 % for land and building, 2 % for other types of rent. Limit, 180000, and more. 

TDS on rent of land and building: TDS is to be deducted at the rate of 10 % if the aggregate rent is Rs. 1,80,000 or more during the financial year.

TDS on rent other than Land and Building @ 2 %

194J – Professional charges. Limit above 30,000 at the rate of 10 %

Fees paid to professionals (Lawyer, doctor, engineer, software development, consultancy charges, interior decorator, and fees for technical services)

194H – Commission. 

Commission/brokerage exceeding Rs.15000 in aggregate is covered under TDS @ the rate f 5 %.

TDS deduction, payment, and returns filing.

Deduction – TDS should be deducted on payment in case of salary income and payment or credit in case of payment of other income listed above. The deduction is to be made on the same date of payment or credit.

Payment – Payment of TDS should be made to Govt account on or before the 7th day of the following month and for March month the due date is the 30th of April.

Filing of TDS returns: Quarterly returns need to be filed for each quarter within the end of the month following each quarter, and for the Month of March it is within the end of May month.

Return form no 24Q for salary.
26Q for other income.

If due dates are not complied with, Penalty and interest will be applicable. 

General Instructions.

1. This is not an inclusive list, we had given only frequent transactions.
2. NON-deduction, the lower deduction, is not covered.
3. Payment to non-residents not covered.
4. Points are written considering only partnership firms.
5. Educational cess applicable only to salary tds.
6. If the receiver of Income does not have pan tds @ 20 % will be deducted.
7. The full amount of TDS is to be deducted on payment of Income in case the limit exceeds covering the previous transactions.
8. Income tax department provides a calendar for income tax purposes, it may be used for reference.