Income tax return filing and GST registration for partnership firm

Partnership firm compliance

Guide on Income tax return filing and GST registration for partnership firm

A partnership firm is regarded as a separate person as per the Income Tax Act and GST Act, Once the partnership deed is prepared and signed by all the partners, the firm becomes legally active, and partnership deed registration can be done any time after the deed is signed.

Therefore it is irrelevant whether the firm is a registered partnership firm or an unregistered partnership firm.

The partnership registration should be applied to get the firm registration certificate and enforce legal rights against the third parties, however, it is irrelevant according to the Income Tax Act 1961 and CGST Act 2017.

When is GST registration for partnership firms required?

GST registration for any business structure is common, and the registration requirements are common for all structures of business. It is not mandatory to get GST registration for new business immediately after the firm registration.

Broadly GST number registration for partnership firms is required in 3 situations. 

When the firm crosses the GST registration turnover limit for partnership firm

Partnership firms engaged in business activity in Tamil Nadu should apply for a GST registration certificate only when aggregate turnover exceeds Rs.40 lakhs when dealing only in goods and the turnover limit for GST registration is Rs.20 lakhs in case of supply of services.

The mandatory GST registration limit varies for each state and special category states, the mandatory GST registration limit provided here applies to Tamil Nadu.

Once the threshold limit for GST registration exceeds the mentioned limit, the partnership firm GST registration application should be submitted within 30 days.

GST registration for partnership firms based on the nature of the business

In the case of a certain type of business, a GST registration number is compulsory without any threshold limit, those partnership firms are required to get a GST registration certificate to start the business activity.

Here is the list of partnership businesses which require mandatory GST registration

  • GST registration for export-oriented enterprises is compulsory, irrespective of the value of exports, the registered dealer is required to pay GST on supplies made to domestic supply as well as export supplies.
  • The entities located in the special economic zone are required to apply for GST registration without any relaxation to receive inputs and purchases at zero rates and supply goods to the domestic tariff area.
  • Application for GST registration is mandatory even if the partnership firm makes a supply to units in the special economic zone, any supply to businesses in the special economic zone is considered as an export, therefore based on this principle GST registration is mandatory.
  • A business engaged in the inter-state supply of goods,  or goods together with services.
  • A partnership firm is a casual taxable person as per CGST Act 2017, this GST number is also called a temporary GST number because it is valid only for a specific period.
  • When the firm is required to pay tax under the reverse charge mechanism, GST registration for the reverse charge is compulsory.
  • The partnership firm is an e-commerce operator.
  • Partnership firm which is running a franchise model business by using the brand of others.

Voluntary GST registration for partnership firms 

For certain kinds of business, GST registration will be required irrespective of relaxation given by the GST Act, without GST registration there will be a negative impact on business, in such cases it is advised to get a GST registration certificate.

Here are some examples of the benefits of GST number registration.

  • Business-to-business transactions are always preferred between the GST-registered dealers for availing GST input tax credits on the purchase of goods or services.
  • In the case of trading business, and the entire purchase or major portion of the purchase is from the GST-registered dealer, it will be profitable only if the sales are made with GST to avail the benefits of input tax credit.
  • Financial institutions, and clients availing professional services, consider GST-registered businesses as credible entities.
  • Customers prefer buying from the GST registered dealers to claim a warranty using the GST invoice, in such cases where the firm is engaged in the sale of goods that have a warranty it is advisable to register GST to sustain the business in a competitive environment.

Important points for GST registration of partnership firm

  • In case GST registration is applied for a partnership firm the application will be approved, only if the GST registration belonging to does not have any defaults relating to cancelation of GST registration.
  • If the GST number was canceled by the officer for not filing the GST returns, then the application will be approved only after the filing of pending GST returns.
  • The address as per the partnership deed, the address provided for the GST registration application, and the address as TNEB receipt should be the same. A partnership amendment deed is necessary if the current address is different from the address provided in the partnership deed. All the address proofs for GST registration should be consistent and match each other for fast approval.
  • If the partnership firm has a branch GST registration application should include the details of the branches and submit the required address for GST branch registration. Alternatively, new GST registration for partnership firms for each branch can be applied in the same state.
  • In case of any defaults of the partnership firm, all the partners existing during the default are liable individually as well as collectively.
  • In case of the removal of partners or admission of a new partner into the partnership firm, the GST registration profile should be updated by submitting a GST amendment application with supporting documents such as a partnership amendment deed and KYC documents of the partner.
  • The details of the authorized person should be submitted in the partnership GST registration online application, add the partner who will be mostly available in the principal place of business as an authorized person this will make communication between the firm and GST department convenient.
  • The benefits of the composition scheme may be utilized by making the application for GST registration as a composite taxpayer, once applied as a regular taxpayer it cannot be changed to the composition taxpayer for the current financial year.
  • Name as per PAN of the partners and Aadhaar should match for successful E-KYC,  E-KYC of GST registration application is required for quick processing of GST number registration without physical verification of business premises. Any one of the partners can complete the E-KYC process for firm GST registration.

Income tax return filing and other compliance for Partnership firm

Compliance with provisions of the Income Tax Act is required from day one after the partnership firm is formed, as a primary and initial step towards Income Tax Act compliance, PAN number application and TAN number application should be made.

Income tax return filing for partnership firm

  • When to file an income tax return for a partnership firmIncome tax return filing is mandatory for partnership firms, irrespective of the turnover of the business or profit, the firm is required to file an income tax return even if it does not engage in business or there is a loss. In case there is no income for the partnership firm, a nil return or loss return should be filed.
  • Benefits of presumptive taxation income tax return filing for partnership firmA partnership firm can avail the benefit of presumptive taxation U/s.44AD available to small businesses and U/s.44ADA available to professionals, a partnership firm can avail the benefit of presumptive taxation scheme, if its turnover does not exceed Rs.2 crores in a financial year and for professional services the limit is Rs.50 lakhs.
  • Due date for filing partnership income tax returnThe due date for filing an income tax return for the partnership firm is 31st July, if the firm is required to file a tax audit report then the due date for filing an income tax return is 31st October. The tax audit report should be filed on or before 30th September of the succeeding financial year.A partnership firm is required to file income tax returns in Form ITR-5, partnership firm cannot file ITR in ITR-3.

    If the partnership firm is required to file a tax audit report the due date to file personal income tax returns for partners is 31st October of the succeeding financial year.

  • Deduction on amounts paid to partners

    While computing the total income of the partnership firm amounts such as remuneration, interests, and commission payable to partners are allowed to the maximum limit as authorized by the partnership deed.Interest payable to partners for capital contributed is restricted to 12 % per annum even if the partnership deed allows a higher percentage.
  • The income tax rate for partnership firmA partnership firm is subject to a flat rate of income tax, at 30 % of total income.A partnership firm is the best tax planning tool, to avail the benefit of presumptive taxation and GST threshold limit exemption, so in addition to tax benefits available to the proprietor, the additional exemption is available to a partnership firm in GST.

    The provisions of minimum alternate tax are applicable for the partnership firm, therefore the minimum tax payable by the firm is 18.5 %  on adjusted total income.

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