Partnership firms are one of the most common forms of business organization in India, especially among small and medium enterprises (SMEs). Governed by the Indian Partnership Act, 1932, a partnership firm is formed when two or more individuals come together to carry on a business and share its profits.
While partnership firms offer flexibility and ease of formation, many business owners overlook the crucial aspect of statutory compliance. Whether a partnership is registered or unregistered, there are certain legal, financial and regulatory obligations that must be met to ensure smooth functioning and to avoid penalties.
In this blog, we will take a detailed look at the mandatory compliances for partnership firms in India and help you understand better how to keep your firm legally compliant.
Types of Partnership Firms
Before diving into compliances, it’s important to understand the two types of partnership firms: –
- Registered Partnership Firms: Registered with the Registrar of Firms under the Indian Partnership Act, 1932.
- Unregistered Partnership Firms: Formed through a partnership deed but not registered with the Registrar.
Note: While registration is not mandatory, registered firms enjoy more legal rights, such as the ability to sue other partners or third parties, enforce contractual rights, etc.
Key Compliances for Partnership Firms
Income Tax Compliances
1. PAN for Partnership Firm
- A separate Permanent Account Number (PAN) must be obtained for the partnership firm.
- Even though it is not a separate legal entity like a company, the firm is assessed independently under the Income Tax Act.
2. Tax Return Filing (ITR-V Form)
The firm must file an Income Tax Return (ITR-5) annually, irrespective of profit or loss.
Due Date:
- 31st July – if audit is not applicable
- 31st October – if audit is applicable
3. Tax Audit (if applicable)
A tax audit is mandatory if:
- Turnover exceeds ₹1 crore (for businesses)
- Turnover exceeds ₹50 lakh (for professionals)
The firm must get the accounts audited under Section 44AB of the Income Tax Act.
4. Advance Tax
- Firms are required to pay advance tax if their total tax liability exceeds ₹10,000 in a financial year.
- Due in four instalments: June (15%), September (45%), December (75%), March (100%).
GST Compliances
1. GST Registration
GST registration is mandatory if the aggregate turnover exceeds:
- ₹40 lakh for goods (₹20 lakh in special category states)
- ₹20 lakh for services
Firms involved in interstate supply or e-commerce must register regardless of turnover.
2. GST Return Filing
Monthly and quarterly GST return filing required based on turnover and scheme opted: –
- GSTR-1: Details of outward supplies.
- GSTR-3B: Summary return and payment of tax.
- GSTR-9: Annual return. (if applicable)
3. Maintaining GST Records
Maintain invoices, input tax credit records, and reconciliation reports.
TDS (Tax Deducted at Source) Compliances
- TAN (Tax Deduction and Collection Account Number)
- Firms that are required to deduct TDS must obtain a TAN.
- TDS Deduction & Payment
- TDS must be deducted on certain payments like salary, contractor payments, rent, etc., if they cross specified thresholds.
- TDS Return Filing
- File quarterly returns using Forms 24Q, 26Q, etc.
Maintenance of Books and Audit (as per Section 44AA & 44AB)
1. Books of Account
Required if:
- Turnover exceeds ₹25 lakh (in profession)
- Turnover exceeds ₹1 crore (in business)
Must maintain:
- Cash book
- Journal
- Ledger
- Copies of bills, vouchers, etc.
2. Audit Requirement
As mentioned earlier, an audit is compulsory if turnover exceeds the prescribed limits under the Income Tax Act.
Other Annual Compliances
- Reconstitution of Firm
- Any change in partners, capital, or profit-sharing ratio must be updated via a new deed.
- If registered, the changes must be filed with the Registrar of Firms.
- Change in Address or Name
- Notify the Registrar of Firms of the relevant forms and supporting documents.
- Dissolution of Partnership
- If the firm is being dissolved, file a notice with the Registrar (if registered).
- Clear tax liabilities and close bank accounts.
Other Possible Regulatory Compliances
Depending on the nature and scale of your business, additional registrations and licenses may be required: –
- Shops and Establishments Act License.
- Professional Tax Registration.
- Import Export Code (IEC) – if dealing in international trade.
- FSSAI License – for food-related businesses.
- ESIC and EPF Registration – if employing more than the specified number of employees.
- Trade License – from the local municipal authority.
Consequences of Non-Compliance
Ignoring statutory compliances can lead to:
- Penalties and interest under Income Tax and GST laws.
- Legal disputes due to a lack of formal agreements.
- Ineligibility to sue in court. (if firm is unregistered)
- Loss of credibility and business opportunities.
Best Practices for Compliance Management
- Maintain updated books of accounts throughout the year
- Use accounting software to track transactions, invoicing and GST returns
- Seek help from a legal or tax professional to ensure timely filings
- Register the firm even if it’s not mandatory to access legal remedies
- Educate all partners on their compliance roles and responsibilities
Conclusion
While partnership firms are easy to form and operate, managing their legal, tax, and regulatory compliance is very important for sustainable growth. Timely registration, proper documentation, regular tax filings and clear partnership agreements are the cornerstones of a compliant partnership firm in India.
Whether you’re running a small family-run enterprise or a growing professional firm, staying compliant not only protects you from legal troubles but also strengthens your business reputation and reliability in the market.
By investing in proper compliance practices, you not only reduce the risk of penalties but also build a solid foundation for future expansion, access to funding, and long-term operational efficiency.
