top of page

Partnership Compliance

In India, a Partnership Firm is a business structure where two or more individuals (partners) agree to share the profits or losses of a business carried on by all or any of them acting for all. It's governed by the Indian Partnership Act, 1932. Unlike LLPs or companies, registration of a partnership firm is not mandatory, but it is highly advisable for legal and operational advantages (e.g., ability to sue third parties, set-off claims).

Here's a detailed breakdown of the compliance process for a Partnership Firm:

I. Initial Setup & Registrations (One-Time)

1. Partnership Deed

  • Procedure: This is the most crucial document. It's a written agreement on stamp paper signed by all partners, outlining the terms and conditions of the partnership. It defines:

    • Name and address of the firm and partners

    • Nature of business

    • Date of commencement of business

    • Capital contribution by each partner

    • Profit/loss sharing ratio

    • Salaries, commissions, or other remuneration payable to partners

    • Interest on capital, drawings, and loans

    • Procedure for admission, retirement, or death of a partner

    • Procedure for dissolution of the firm

    • Dispute resolution mechanism

  • Importance: It prevents future disputes and serves as a foundational legal document.

2. Registration with Registrar of Firms (Optional but Recommended)

  • Procedure: While not mandatory under the Indian Partnership Act, 1932, registering the firm provides legal standing.

    • Application: Submit Form A (Application for Registration) along with the Partnership Deed and other required documents to the Registrar of Firms in the state where the firm's principal place of business is located (e.g., Inspector General of Registration, Chennai for Tamil Nadu).

    • Documents: Duly filled Form A, certified copy of the Partnership Deed, proof of ownership/rental of business premises, identity and address proofs of all partners, photographs of partners.

    • Verification & Certificate: The Registrar verifies the documents and, if satisfied, registers the firm and issues a Certificate of Registration.

  • Benefits of Registration:

    • The firm can sue third parties.

    • Partners can sue the firm or other partners.

    • The firm can claim set-off of claims.

    • Enhanced credibility.

3. PAN (Permanent Account Number) for the Firm

  • Procedure: A partnership firm must obtain a separate PAN card in its name, distinct from the partners' individual PANs. Apply using Form 49A.

  • Importance: Essential for all tax-related compliances.

4. TAN (Tax Deduction and Collection Account Number) (If Applicable)

  • Procedure: Obtain a TAN if the firm is required to deduct or collect tax at source (TDS/TCS). Apply using Form 49B.

  • Importance: Mandatory for all TDS/TCS related transactions and filings.

5. Bank Account

  • Procedure: Open a current bank account in the name of the partnership firm.

  • Documents: Firm's PAN, Partnership Deed, Registration Certificate (if registered), partners' PAN/Aadhaar, address proof of business, etc.

  • Importance: To segregate business transactions from personal ones and for formal financial operations.

6. Udyam Registration (MSME Registration) (Recommended)

  • Procedure: Apply online at udyamregistration.gov.in using the firm's PAN and partners' Aadhaar.

  • Importance: Access to various government schemes, subsidies, and priority sector lending for Micro, Small, and Medium Enterprises.

7. GST Registration (If Applicable)

  • Procedure: Online application on the GST Portal (www.gst.gov.in).

    • Threshold Limits (Mandatory if exceeded):

      • Goods: Aggregate annual turnover exceeding INR 40 Lakhs (INR 20 Lakhs for special category states).

      • Services: Aggregate annual turnover exceeding INR 20 Lakhs (INR 10 Lakhs for special category states).

    • Other Mandatory Cases (Irrespective of Turnover): Inter-state supply of goods, e-commerce operators/sellers, etc.

    • Documents: Firm's PAN, Partnership Deed, partners' ID & address proofs, business address proof, bank account details, DSC or EVC for submission.

  • Importance: Allows for collection of GST, claiming Input Tax Credit (ITC), and legal participation in the GST supply chain.

8. Shop and Establishment Act Registration (If Applicable)

  • Procedure: Mandatory for commercial establishments in urban areas like Chennai. Register with the local municipal authority (e.g., Greater Chennai Corporation) or Labour Department. This is a state-level compliance.

  • Documents: Partnership Deed, business address proof, firm's name, nature of business, partners' details, etc.

  • Importance: Governs working conditions, hours, holidays, etc.

9. Professional Tax Registration (If Applicable)

  • Procedure: This is a state-level tax on income from profession/employment. In Tamil Nadu, partnership firms are liable to register and pay professional tax.

    • PTEC (Professional Tax Enrollment Certificate): For the firm as an entity.

    • PTRC (Professional Tax Registration Certificate): If the firm has employees, to deduct tax from their salaries.

    • Online Application: Register with the Greater Chennai Corporation or relevant municipal body.

  • Importance: Mandatory in applicable states.

10. Import Export Code (IEC) (If Applicable)

  • Procedure: Obtain from the Directorate General of Foreign Trade (DGFT) if the firm intends to import or export goods/services. Online application.

  • Documents: Firm's PAN, bank account details, address proof.

II. Recurring Annual Compliances

1. Income Tax Filing

  • Procedure: Every partnership firm must file an Income Tax Return annually, regardless of income or loss.

  • Form: ITR-5 is the designated form for partnership firms.

  • Due Dates (for FY 2024-25, Assessment Year 2025-26):

    • July 31, 2025: If the firm is not subject to tax audit.

    • October 31, 2025: If the firm is subject to tax audit.

  • Tax Audit (Section 44AB): Mandatory if the firm's:

    • Business Turnover/Gross Receipts: Exceeds INR 1 crore in a financial year (or INR 10 crore if cash transactions are less than 5%).

    • Professional Gross Receipts: Exceeds INR 50 lakhs in a financial year.

    • Or, if the firm opts for presumptive taxation but declares lower profits than prescribed and its total income exceeds the basic exemption limit.

  • Penalty for Late Filing: Up to INR 5,000 under Section 234F.

2. GST Return Filing (If Registered for GST)

  • Procedure: File regular GST returns online on the GST Portal.

  • Forms & Frequency:

    • GSTR-1 (Outward Supplies/Sales): Monthly (11th of succeeding month) or Quarterly (13th of month succeeding quarter) depending on turnover/scheme.

    • GSTR-3B (Summary Return for Tax Liability and ITC): Monthly (20th of succeeding month) or Quarterly (22nd or 24th of month succeeding quarter).

    • GSTR-9 (Annual Return): Due by December 31st of the succeeding financial year (optional for turnover up to INR 2 crore).

    • GSTR-4 (Composition Scheme): If the firm opts for the Composition Scheme, it files GSTR-4 annually (by April 30th of succeeding FY) and pays tax quarterly (by 18th of month succeeding quarter).

  • Penalty for Late Filing: Late fees and interest (INR 20-50 per day for returns, 18% p.a. interest on tax payable).

3. TDS/TCS Compliance (If Applicable)

  • Procedure: If the firm has a TAN and makes payments attracting TDS (e.g., salaries to employees, rent, professional fees, interest), or collects TCS, it must:

    • Deduct tax at source at prescribed rates.

    • Deposit the deducted tax with the government (monthly by 7th of succeeding month, 30th April for March).

    • File quarterly TDS/TCS returns (Form 24Q, 26Q, 27Q, etc.) by prescribed due dates (e.g., 31st July, 31st Oct, 31st Jan, 31st May).

    • New Section 194T (from April 1, 2025): TDS at 10% on payments like salary, remuneration, bonus, commission, or interest by the firm to a partner if the aggregate amount exceeds INR 20,000 in a financial year.

  • Importance: Mandatory for compliance with tax deduction/collection obligations.

4. Professional Tax Payments & Returns (If Applicable)

  • Procedure: In Tamil Nadu, professional tax is typically paid half-yearly.

    • Payment Due Dates: For the first half-year (April-September), by September 30th. For the second half-year (October-March), by March 31st.

    • Return Filing: Returns are usually filed along with payments, as per specific municipal corporation rules.

  • Penalty for Late Payment: Penalties include 2% monthly fine and an additional 10% on default.

5. Provident Fund (PF) and Employees' State Insurance (ESI) (If Applicable)

  • Procedure:

    • EPF (Employee Provident Fund): Mandatory registration if the firm employs 20 or more persons. Contributions (12% each from employer and employee on basic wages) are deposited monthly, and returns filed.

    • ESI (Employees' State Insurance): Mandatory registration if the firm employs 10 or more persons (in most states/areas notified). Contributions (3.25% by employer, 0.75% by employee on gross wages up to INR 21,000/month) are deposited monthly, and returns filed.

  • Importance: Provides social security benefits to employees.

6. Maintenance of Books of Accounts

  • Requirement: The Income Tax Act mandates maintenance of proper books of accounts if the firm's:

    • Gross receipts from profession exceed INR 50 lakh in any of the three preceding years.

    • Sales/Turnover/Gross Receipts from business exceed INR 1 crore in any of the three preceding years.

  • Records: Cash book, ledger, journal, copies of invoices, bills, receipts, etc.

III. Event-Based Compliances

These are triggered by specific events or changes:

  • Changes in Partnership Deed: Any modification to the Partnership Deed (e.g., change in profit-sharing, admission/retirement of a partner, change in firm name or principal place of business) must be intimated to the Registrar of Firms (if registered) by filing Form B, C, D, or E within 90 days of the change.

  • Change in Registered Office: Update the address with all relevant authorities (Registrar of Firms, Income Tax, GST, bank, etc.).

  • Change in Partners' Details: Update identity or address changes of partners with relevant authorities.

  • Dissolution of Firm: When a firm is dissolved, a notice of dissolution must be filed with the Registrar of Firms (if registered). The firm must cancel its GST registration (if applicable) and ensure final tax returns are filed.

  • E-way Bills (If Applicable): Required for movement of goods exceeding specified threshold values (INR 50,000 for inter-state, state-specific for intra-state in Tamil Nadu).

  • E-invoicing (If Applicable): Mandatory for B2B and export transactions if the firm's aggregate turnover exceeds INR 5 crore in any preceding financial year from 2017-18 onwards.

General Procedure for Online Filings

Most tax and regulatory compliances are now performed online:

  1. Access Portals: Visit the respective government portals (e.g., Income Tax e-filing portal, GST Portal, Udyam Registration portal, state's Professional Tax/Shop & Establishment portal).

  2. Login/Register: Use the firm's credentials to log in.

  3. Select Form/Service: Navigate to the relevant form or service (e.g., ITR-5, GSTR-1, TDS Return).

  4. Fill Details: Accurately fill in all required information.

  5. Upload Documents: Attach scanned copies of supporting documents as specified (usually in PDF format).

  6. Review: Carefully review all entered data before submission.

  7. Digital Signature/OTP: Authenticate the submission using a Digital Signature Certificate (DSC) of a partner (often mandatory for partnership firms for Income Tax and GST filings) or EVC (Electronic Verification Code).

  8. Payment (if any): Pay any applicable taxes, late fees, or registration fees online.

  9. Acknowledgement: Download and save the acknowledgement receipt (e.g., ITR-V, ARN) for your records.

bottom of page