What is Annual Compliance for a Partnership Firm?
Annual compliance involves fulfilling the legal and financial obligations mandated by the Income Tax Act, 1961, and other regulatory bodies. Unlike companies, partnership firms have fewer compliance requirements, but they are strictly enforced.
Proper compliance ensures the firm's legal status, avoids heavy penalties, and builds credibility with banks and investors.
Registered vs. Unregistered Partnership Firm
While registration is optional, it offers significant advantages:
| Feature | Registered Firm | Unregistered Firm |
|---|---|---|
| Right to Sue | Can sue third parties and partners. | Cannot sue third parties or partners. |
| Credibility | High; preferred by banks. | Low; difficult to get loans. |
| Tax Compliance | Mandatory. | Mandatory. |
Key Annual Compliances
- Income Tax Return (ITR-5): Mandatory for all partnership firms, regardless of profit or loss. Tax rate is flat 30% + cess.
- GST Returns: Mandatory if registered under GST. Includes GSTR-1 (Sales), GSTR-3B (Summary), and GSTR-9 (Annual).
- TDS Returns: If the firm deducts TDS on payments like salary, rent, or professional fees, it must file quarterly TDS returns.
- Tax Audit: Mandatory if turnover exceeds ₹1 Crore (or ₹10 Crore if cash transactions < 5%).
- Financial Statements: Maintaining proper books of accounts (Balance Sheet, P&L) is essential.
Important Due Dates
| Compliance | Due Date |
|---|---|
| ITR Filing (Non-Audit) | 31st July |
| ITR Filing (Audit Cases) | 31st October |
| Tax Audit Report | 30th September |
| GST Annual Return | 31st December |
Documents Required for Compliance
- Partnership Deed
- PAN Card of the Firm and Partners
- Bank Statements (for the financial year)
- Invoices of Sales and Purchases
- Expense Vouchers and Bills
- GST Registration Certificate (if applicable)
- TDS Certificates (if applicable)
Consequences of Non-Compliance
Missing deadlines can lead to severe penalties:
- Late ITR Filing: Up to ₹5,000 penalty u/s 234F + Interest u/s 234A.
- Non-Filing of GST: Late fees and cancellation of GST registration.
- TDS Default: Interest and penalties ranging from ₹200/day to ₹1 Lakh.
- Loss of Benefits: Inability to carry forward losses.
