In India, we have a definite law that covers all aspects and functioning of a partnership, The Indian Partnership Act 1932. The act also defines a partnership as “the relation between two or more persons who have agreed to share the profits from a business carried on by either all of them or any of them on behalf of/acting for all”. So in such a case two or more (maximum numbers will differ according to the business being carried) persons come together as a unit to achieve some common objective. And the profits earned in pursuit of this objective will be shared amongst themselves. The entity is collectively called a “Partnership Firm” and all the individual members are the “Partners”.

A flat rate of 30% on the total income after deduction of interest and remuneration to partners/Designated Partners at the specified rates + Surcharge of 12% if Total Income exceeds 1 Crore and will be further increased by Health and Education Cess 4% on Income-tax (Wef A.Y. 2019-20 education Cess secondary and higher education Cess @ 3% replaced by Health and Education Cess 4% )

The partners of the firms are taxed with consideration of following pointers :

    On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more; rest of the balance of the book profit – 60% of book profit.

Partnership firms are required to file income tax return in form ITR 5. Like all other income tax forms, ITR 5 is an attachment less form and there is no requirement for submitting any documents or statements along with a partnership firm tax return. However, the taxpayer must save all records pertaining to the business and produce the same before tax authorities when requested.

The income tax return due date for most partnership firms is July 31 of the assessment year. Partnership firms required to get its accounts audited under the income tax Act must file the income tax return before the September 30th deadline.

The Income Tax Department has made provisions for tax audit under Section 44AB of the Income Tax Act 1961. The purpose of an income tax audit is that an individual or organisation’s taxes are examined by an external agency to check that all the information regarding income, expenditure and deduction has been filed correctly. Income Tax Audit has been made mandatory, and all taxpayers have to get the accounts of their business or organisation audited as per as the provisions of Section 44AB of the Income Tax Act.

An Income Tax audit has several objectives. It ensures that all businesses maintain a proper book of accounts and other expense and revenue records in a proper manner. A tax audit also ensures that the total income and claims for deduction are correctly entered when filing the returns. This brings down chances of fraud.

Income tax audit applies to certain classes of businesses. If a proprietor is running a business and sales turnover exceeds Rs 1 crore, a tax audit is mandatory. LLPs with an annual turnover of more than Rs 40 lakh or capital contribution of Rs 15 lakh needs to audit their accounts by a chartered accountant. All kinds of companies, whether it is a private limited company or one person company need to get tax audits done irrespective of annual turnover.