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The partnership firm must file a partnership income tax return under the Income Tax Act 1961. The partnership firms are liable to income tax at 30% of gross income. Here you will get to know more about partnership firm income tax slab. Also, the partnership firm has to pay an income tax surcharge of 12% if the total income exceeds Rs.1 crore.

In addition to income tax and surcharges, partnership firms must pay education and secondary higher education taxes.

The education tax is levied at the income tax rate and a surcharge of 2%. Secondary and higher education levies are based on the amount of income tax and an applicable surcharge of 1%.

What Is Taxable Income for a Partnership

Taxable income refers to personal or corporate compensation used to determine tax liability. Gross income or total income amount is used as the basis for calculating the amount due to the government by an individual or entity for that taxable period.

Taxable income includes all types of compensation, whether in the form of money or services, as well as property. Unless certain income is specifically exempt by law, all income is taxable and must be declared on your income tax return. For example

salary, wage, interest received from the bank, stock option, dividend, unemployment benefits, notes received, and rent from private property

What Is the Exemption Limit for Partnership Firm

By adhering to deductions, exemptions, and rebates, and by properly managing and reporting your organization’s spending, you can minimize the taxes you owe. 

These deductions may include:

  1. Capital gains taxable at a flat rate of 15% or 20% or exempt under sections 54D, 54G, 54GA 54EC, etc.
  2. Contributions to charitable organizations that are conditionally tax exempt from 50-100% under Section 80G.
  3. Dividends may be eligible for rebates in certain cases.
  4. Deduction of depreciation under Article 32, this allows 15% depreciation for old assets such as machinery and an additional 20% deduction for purchases of new assets related to the manufacture or production of any item or thing(The business of power generation, transmission, and distribution). 
  5. Deductions related to hiring new employees u/s 80JJAA.

What Is the Tax Slab for Partnership Firm in India

Partnership firm income tax slab. If you own a company and are under the age of 60, your corporate income tax in India will be based on these slabs.

For the 2023/24 tax year, partnerships (including LLPs) are taxed at 30%.

addition:

  1. Surcharge: If the gross income exceeds INR 1,000,000, the amount of income tax will be increased by a surcharge of 12% of this tax. However, surcharges are slightly reduced.
  2. Health Education Tax:

The amount of income tax and applicable surcharges is further increased by a health and education tax calculated at a rate of 4% of that income tax and surcharge.

How Do You Report Partnership Income

A partnership can file an information return annually to report all income, deductions, profits, losses, etc. from its operations, but can not pay income tax. Instead, it “passes” all the profit or loss on to the partner. Each partner declares their share of the partnership’s income or losses on their personal tax returns.

Partners are not employees and do not need to receive a W-2 form. The partnership must provide the partner with a copy of Schedule K-1 (Form 1065).

How Is Tax Calculated for a Partnership Firm

Do you have partner companies? then, you need to clarify the calculation of income tax on partnerships. Certain provisions must be observed when calculating tax liability. Just take a look:

First, you must consider the important fact that partners and partnership companies are separate legal entities. You must submit your partnership tax return along with your personal tax return. Partnership tax rates and income tax calculations are slightly different from sole proprietorships. Income tax returns will be specific to the partnership.

Calculate the company’s total business income.   

  1. Deduct all deductible business expenses.
  2. Expenses that can be deducted under the section headed “Business or Profession Profit and Loss”.
  3.    From this profit we reduce the partner’s permissible salary and interest.

Partner Wage and Interest Provisions for Income Tax under Section 40B:

There must be a partnership deed or other legal means of establishing a partnership.

  1. Partner share is decisive and a certified copy of the partnership must be retained by the company.
  2. A revised document must be prepared if there is a change in ratio or remuneration.
  3. None of the failures listed in Section 144.
  4. The recipient has not claimed the alleged taxation and uses Sections 44AD and 44ADA in completing the tax return.

Calculate other income of the firm:

  1. Other income such as capital gains, homeownership income, and other income can be calculated in the same way as for individuals.
  2. Also, deduct brought forward losses if any from the income.

Aggregate all earnings.

  1. Deduct allowable deductions per sections 80G, 80GGA, 80GGC, 80IA, 80IB, 80IC, 80ID, 80IE, 80JJA.
  2. Finally, find the net profit. Now calculate the tax on all that income.

The income tax rate on income from partnerships:

Short-term capital gain for sale of equity oriented fund and STT is paid15%
Long Term Capital Gain20%
Other Income & Short Term Capital Gain  30%

                                                 

Please note that the above rate does not include a surcharge and 4% education cess. Also, a 12% surcharge applies for turnovers of more than Rs. 1 crore.

In this way, you can easily calculate the tax payable. You have to understand the AMT provision to determine tax liability.

Frequently Asked Questions (FAQs):-

Is it mandatory for partnership firm to file ITR?

Yes, all partnerships are required to file an income statement regardless of the amount of income or loss

Is TDS compulsory for partnership firm?

If you pay the amount required to deduct TDS, you must deduct TDS without considering the sales amount. you should apply for tan due to the partnership having no exemption for deducting TDS.

Conclusion

Now as you know about the partnership firm income tax slab. The partnership firms are liable to income tax at 30% of gross income. Also, the partnership firm has to pay an income tax surcharge of 12% if the total income exceeds Rs.1 crores. All partnerships are required to file an income statement regardless of the amount of income or loss.

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