According to section 4 of the Partnership Act of 1932,”Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business run by all or any one of them acting for all”
Number of Partners:
The minimum number of partners is 2 and there is no limit of maximum partners under Partnership Act 1932. However, section 464 of Companies Act 2013, and Rule 10 of Companies (Miscellaneous) Rules, 2014 prohibits partnership consisting of more than 50 for any businesses, unless it is required to get registered as a company under Companies Act, 2013.
Partnership deeds should be in written.
Following details are required in a partnership deed:
- Name and address of the firm and all the partners.
- Nature of business.
- Date of starting of business.
- Capital to be contributed by each partner.
- Profit/loss sharing ratio among the partners.
- Others, as per requirement
Is it necessary to register a partnership firm?
Registration of partnership firm is optional and at the discretion of the partners.
An application form along with fees is to be submitted to Registrar of Firms of the State in which firm is situated.
Benefits of partnership registration:
- Ability to file a case against third parties, and other partners
- Power to claim set-off against any third-party claim
- Easily convert into any other business structure
Documents to be submitted to Registrar are:
- Application for registration of partnership (Form A)
- Self attested copy of PAN Card/ Adhaar Card/ voterid/ driving licence
- Certified original copy of Partnership Deed
- Proof of principal place of business (ownership documents or rental/lease agreement)
Process for registeration of Partnership Firm:
- Prepare partnership Deed
- Generate Stamp paper as per state requirement
- Get deed printed & signed by partners along with Notary.
- Get register of https://haryanaindustries.gov.in/msme/firm/registration
- Download application form & get signed by partners
- Upload documents:-
-Certified application form
-Signed partnership Deed
-Rent Agreement/ Allotment letter for proof of address of principle place of
- Get approved by registered office of the firm
Partnership Tax Rate:
Income tax at the rate of 30% of total income( surcharge 12% if income exceeds 1cr) & 4% cess is applicable.
Income Tax Calculation for Partnership Firm:
- Salary, bonus, commission, or remuneration paid to non-working partners.
- Remuneration or interest paid to the partners which are not in accordance with the terms of the partnership deed.
- If remuneration or interest paid to the partners is in accordance with the terms of the partnership deed but they relate to any period prior to the date of the partnership deed.
In addition to the above, interest paid to partners is in accordance with the terms of the partnership deed should not exceed 12% per annum. Also, remuneration paid to partners should be in accordance with the terms of the partnership deed and should not exceeds the following permissible limit:
- On first Rs. 3 Lakhs of book profit or in the case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more.
- On the balance of the book profit – 60% of book profit.
(as per section 40(b) of Income tax Act 1961)
Partnership Firm Tax Return Filing:
Partnership firms are required to file an income tax returns in form ITR 5.
Partnership Firm Tax Return Due Date:
The income tax return due date for most partnership firms is July 31 of the assessment year, if audit then 30th September.
Partnership firms that conform to any of the conditions below would be required to get the accounts audited:
- Carrying on business and total sales exceed Rs.1 crore in the previous year.
- Carrying on a profession and gross receipts in profession exceed Rs.50 lakhs in any previous year.
If a partnership firm entered into international transactions or specified domestic transactions a report must be furnished in Form No. 3CEB under section 92E. For partnership firms required to furnish Form 3CEB, the deadline for filing a tax return is 30th November.
*Obtain a report from an accountant and furnish such a report under form 3CEB and get certified by CA.