Compliances for Partnership Firms in India: A Complete Overview
Partnership firms are ubiquitous business entities in India as they are easy and convenient to incorporate. Yet, there are compliance requirements in managing partnership firms to adopt in order to have smooth functionality and to stay away from fines. This guide gives the compliance requirements for partnership firms in India, concerning topics such as registration, tax compliance, labor laws, and periodical filings.
1. Partnership Firm’s Registration
Registration under the Indian Partnership Act, 1932, is not compulsory for a partnership firm, but is very much desirable from both legal and operational considerations. It is easier to establish rights against the partners and third parties if the firm is registered.
Procedure for Registration
- Draft the partnership deed stating the firm’s goals, roles of partners, contribution of partners, profit-sharing ratio, and other conditions.
- Submit the following documents to the Registrar of Firms in the State at the requisite fee:
- Partnership deed (notarized and stamped).
- PAN of the firm and partners.
- Address proof of the firm and partners.
- Partners’ specimen signatures.
- Pay the registration fee.
- Get the Certificate of Registration.
A Permanent Account Number is mandatory for a partnership firm to
- Open the bank account.
- File an income tax return.
- Focus on other tax requirements.
Application for PAN
Fill up electronically through Form 49A on the UTIITSL and NSDL portals.
Opening the Bank Account
All partnership firms are required to have a valid bank account in the firm’s name to make monetary transactions. The bank will require:
- Pan card of the company.
- Duplicate of the partnership deed.
- Proof of identity and address of partners.
4. Tax Compliance under Income Tax
Income-tax compliance is perhaps the most significant for partnership firms. The following are the basic requirements as specified under the Income Tax Act of 1961:
a. Filing of Income Tax Returns
- Partnership firms are to furnish returns every year in Form ITR-5.
- Tax audit is mandatory for companies with a turnover above ₹1 crore (₹50 lakh for professionals).
- Filing deadlines: Non-audit engagements: 31 July of the year of assessment. Audit cases: September 30 of the year of assessment.
b. Tax Deducted at Source (TDS)
- TDS payment is to be made for incomes like salaries, contractor charges, and rents if they exceed certain thresholds.
- TDS returns must be filed quarterly in forms such as 24Q and 26Q.
c. Advance Tax Payment
- Advance tax is payable if the firm’s tax liability is over ₹10,000 for the year.
- Installments have to be paid by June 15, September 15, December 15, and March 15.
d. Books of Accounts Maintenance
- Companies are obligated to maintain books of accounts, such as records of income, expenditures, assets, and liabilities.
- Accounts are to be audited in case of turnover beyond specified limits under Section 44AB.
5. Compliance under GST
If the turnover of the firm is above ₹40 lakh (₹10 lakh in special category states), GST registration is mandatory. Key GST compliances are:
- Submission of GST Returns: Periodic return filing of GSTR-1, GSTR-3B, and GSTR-9
- Issuance of GST-Compliant Invoices: GSTIN, tax value, and HSN codes should be incorporated into invoices.  Â
- Payment of GST within the due date: GST payment has to be made monthly or quarterly.
6. Compliance with Labor Laws
Partnership firms with employees are obligated to comply with many labor laws:
a. Provident Fund (PF) and Employee State Insurance (ESI)
- Registration under PF is compulsory where the firm has 20 or more employees.
- Registration with ESI is required for companies with 10 or more employees below the threshold level.
b. Payment of Gratuity Act
- Gratuity must be provided to employees with service of at least five years if there are 10 employees in the company.
c. Minimum Wages Act and Payment of Wages Act
- Minimum wages rule compliance and on-time payment of wages.
7. Other Compliances under Regulations
a. Shops and Establishments Act
- Businesses working out of commercial premises have to be registered under the respective state’s Shops and Establishments Act.
b. Professional Tax
- Professional tax is charged by certain states and has to be deposited against wages provided to workers and the remuneration of partners.
c. FSSAI Registration
- Companies dealing in food-related operations have to acquire an FSSAI license.
d. Import-Export Code (IEC)
- Companies involved in import/export have to obtain an IEC from the Directorate General of Foreign Trade (DGFT).
8. Annual and Event-Based Compliance
a. Annual Compliance Checklist:
- Filing income tax returns.
- Submission of GST annual returns (where GST-registered).
- Reconciliation of books of accounts.
b. Events-Based Compliance:
- Alterations in the partnership deed.
- Admission of a partner or resignation.
- Alterations to the firm’s address of record.
- Inform such changes to the Registrar of Firms and the appropriate authorities.
9. Penalties for Failure to Comply
Non-compliance can lead to penalties and legal problems, including:
- Income Tax Non-Compliance: A maximum of ₹10,000 fine under Section 234F.
- GST Non-Compliance: 10% of the amount payable, which is Rs.10,000.
- Labor Law Breach: Penalties and legal proceedings for failure to comply with PF, ESI, or wage regulations.
- Registrar of Firms Non-Compliance: Failure to uphold rights under the Partnership Act.
10. Significance of Professional Help
Partnership businesses usually require professional services to manage compliance requirements. Chartered Accountants, Company Secretaries, and law experts help with:
- Tax planning and compliance
- Keeping statutory books of accounts and records
- Reporting event-driven adjustments and regulatory disclosure.
Get Started with TaxDunia
Legal and business development compliances for partnership companies in India are unavoidable. Tax, labor, and regulatory compliance enable companies to stay penalty-free, credible, and scalable. Staying abreast of legal developments and availing professional assistance ensures that compliance is acting as a catalyst to growth and not as a liability.
