🤝 Partnership Firm Income Tax Return (ITR) Filing – Complete Guide

1️⃣ What is a Partnership Firm Return?

A Partnership Firm Return is the annual tax return filed by a partnership firm (other than LLPs) to declare its income, expenses, and tax liability to the Income Tax Department.

• Governed by Income Tax Act, 1961

• Mandatory under Section 44AB if turnover exceeds prescribed limits

• Helps in tax compliance, claiming deductions, and legal proof of income

2️⃣ Who Should File Partnership Firm ITR?

• All partnership firms, except LLPs, registered under Partnership Act, 1932

• Firms with business or professional income

• Turnover exceeds:

  • ₹1 crore for business

  • ₹50 lakh for professionals (audit applicable under Section 44AB)

• Firms claiming deductions under Chapter VI-A

• Firms with foreign income or assets

Note: Even if turnover is below the threshold, filing may be required to claim refunds.

3️⃣ Income Sources for Partnership Firms

4️⃣ Deductions for Partnership Firms

5️⃣ Choosing the Correct ITR Form

Filing wrong form may result in rejection or processing delay.

6️⃣ Documents Required for Partnership Firm ITR

7️⃣ Step-by-Step Filing Process

Step 1 – Collect Documents

• PAN, Aadhaar, partnership deed, books of accounts, bank statements, Form 26AS, TDS certificates

Step 2 – Compute Total Income

• Business profits minus allowable deductions

• Add other income like capital gains, interest, rent

Step 3 – Claim Deductions

• Business expenses under Section 30–37, 36

• Partner remuneration and interest under Section 40(b)

Step 4 – Pay Tax

• Advance tax if applicable

• Self-assessment tax before filing if tax liability exceeds TDS

Step 5 – File ITR Online/Offline

• ITR-5 on Income Tax e-Filing portal

• Offline filing possible using utility forms

Step 6 – Verification

• e-Verify via Aadhaar OTP, net banking, or bank account

• Physical verification by sending signed ITR-V to CPC Bangalore

Step 7 – Audit (if applicable)

• Section 44AB audit if turnover/professional receipts exceed:

  • Business: ₹1 crore

  • Profession: ₹50 lakh

• Audit report: Form 3CB/3CA + Form 3CD

Step 8 – Acknowledgment & Refund

• ITR acknowledgment generated post-verification

• Refund credited to bank account linked with PAN

8️⃣ Tax Audit for Partnership Firms (Section 44AB)

• Mandatory if turnover exceeds thresholds

• Forms required:

  • Form 3CB / 3CA – Audit report

  • Form 3CD – Detailed schedule of income, expenses, TDS, capital assets, loans, partner remuneration

• Deadline: 30th September of assessment year

• Non-compliance results in penalty under Section 271B

9️⃣ Advance Tax & Self-Assessment

• Partnership firm must pay advance tax in installments:

  • 15% by 15 June, 45% by 15 Sept, 75% by 15 Dec, 100% by 15 Mar

• Interest applies under Sections 234B/C if not paid on time

🔟 Common Mistakes to Avoid

1️⃣1️⃣ Advisory Draft – Partnership Firm ITR

To: [Client Name]
Date: __________

Subject: Advisory on Partnership Firm Income Tax Return Filing

Dear [Client Name],

This advisory provides guidance for filing Income Tax Return for your partnership firm for FY [20XX–XX].

Recommended Actions:

1. Maintain accurate books of accounts, bank statements, invoices, and capital assets register.

2. Ensure partner remuneration and interest are computed as per Section 40(b).

3. Compute total business/professional income including other income sources.

4. Claim eligible business deductions (Sections 30–37, 36, depreciation).

5. File ITR-5 online through Income Tax e-Filing portal and verify within 120 days.

6. Conduct audit under Section 44AB if turnover/professional receipts exceed thresholds.

7. Pay advance/self-assessment tax timely to avoid interest and penalties.

8. Maintain all documents, ITR acknowledgment, and audit reports for at least 6 years.

Benefits: Legal compliance, proper partner remuneration reporting, deduction of expenses, avoidance of penalties, and smooth audits.

Warm regards,
[Consultant Name]
[Designation / Organization]

🔹 Useful Links

• Income Tax e-Filing Portal

• ITR Forms & Utilities

• Section 44AB – Tax Audit

🔹 Additional Information Not Covered Above

1️⃣ Director’s Income and Director’s Fees

• Directors of companies may receive sitting fees, commission, or salary

• All such income is taxable under ‘Income from Salary or Other Sources’

• TDS is deducted under Section 194J

• Filing ITR must include these amounts separately to reconcile with Form 26AS

2️⃣ Income from House Property (Advanced)

• Not just rental income: deductions can include:

  • Interest on home loan (Section 24b)

  • Municipal taxes paid

  • Pre-construction interest (can be claimed in 5 installments)

• For co-owned property, share of income must be reported by each owner

3️⃣ Capital Gains – Special Cases

• Sale of cryptocurrency / virtual assets (taxable at 30% from FY 2022–23)

• Sale of shares / mutual funds (STCG & LTCG, exemptions under 54F, 54EC)

• Gifted or inherited property: capital gains calculation based on cost of acquisition of previous owner

Many taxpayers miss these, triggering IT notices

4️⃣ Foreign Assets and Income (FATCA / FBAR Compliance)

• Individuals, partnership firms, and companies holding foreign bank accounts, property, or financial interest must declare:

  • Schedule FA in ITR

  • Pay tax on foreign income in India

• Failure to report can lead to heavy penalties under Section 271

5️⃣ Agricultural Income

• Exempt from tax if sole source of income

• If combined with other income:

  • Add to total income for slab calculation (Section 10(1))

• Documentation: proof of agricultural land, crop sale receipts, etc.

6️⃣ Dividend Income and Interest Income

• Dividend income (domestic): fully taxable in hands of investor from FY 2020–21

• Interest from fixed deposits / savings: taxable under ‘Income from Other Sources’

• TDS deducted under 194A must be reconciled with Form 26AS

7️⃣ Business/Professional Income – Niche Provisions

• Presumptive taxation under Section 44ADA for professionals (e.g., doctors, lawyers, architects) up to ₹50 lakh turnover

• Section 44AE for goods carriages / transport businesses

• Section 44AD for small business turnover up to ₹2 crore

These schemes simplify accounting but have limitations on deductions.

8️⃣ MAT / AMT (For Companies & Firms)

• Minimum Alternate Tax (MAT) applicable to companies under Section 115JB

• Alternative Minimum Tax (AMT) applicable to specified persons under Section 115JC

• Ensures minimum tax is paid even if profits are adjusted by exemptions

9️⃣ Advance Tax & Quarterly Installments – Detailed

• Individuals & businesses must pay advance tax if tax liability exceeds ₹10,000

• Installments: 15% by 15 June, 45% by 15 Sept, 75% by 15 Dec, 100% by 15 Mar

• Late payment attracts interest under Sections 234B, 234C

🔟 Income Tax Notices & Rectifications

• Common notices:

  • Mismatch of TDS / Form 26AS

  • Non-filing or late filing

  • Under-reporting of income

• Rectification can be done under Section 154

• Important to maintain all proofs to respond to notice

1️⃣1️⃣ Digital Compliance & e-Filing Tips

• Use pre-filled ITR forms to minimize errors

• Upload all supporting documents digitally (Form 16, Form 16A, rent receipts, loan statements)

• Keep soft copies for 6 years for audit and scrutiny

1️⃣2️⃣ Advisory Draft – Advanced Income Tax Filing

To: [Client Name]
Date: __________

Subject: Advisory on Comprehensive Income Tax Filing – Advanced Compliance

Dear [Client Name],

This advisory provides guidance for complete and accurate income tax filing for FY [20XX–XX], covering salary, business, partnership, capital gains, foreign income, and other sources.

Recommended Actions:

1. Collect all income proofs: salary slips, Form 16/16A, bank statements, rental income, capital gains statements.

2. Reconcile TDS, GST, and Form 26AS to avoid mismatch notices.

3. Include income from foreign assets, agricultural income, dividends, interest, and other sources.

4. Claim all eligible deductions under Chapter VI-A.

5. Ensure correct reporting of partnership or business profits, including presumptive taxation schemes.

6. Pay advance/self-assessment tax if applicable.

7. File ITR online via e-Filing portal and verify within 120 days.

8. Maintain digital and physical copies of all documents, proofs, and ITR acknowledgments for at least 6 years.

Benefits: Legal compliance, minimized tax liability, avoidance of penalties, and smooth future audits or loans.

Warm regards,
[Consultant Name]
[Designation / Organization]