What is the Income Tax payable on Partnership Firm
All about partnership firm
As per section 4 of partnership act 1932, partnership means the relationship between the person who are agreed to share the profits of business carried on by all or any of them acting on behalf of all. In simple terms partnership means any person entering into an agreement with other to carry and share profits of the business.
Partnership is not a separate legal entity. A partnership firm cannot possess property on its name. It cannot be debtor or creditor and It cannot employ servants unlike a company which has separate legal entity.
Registration of Partnership firm
Registration of firm is optional it is not mandatory. It can be registered at any time after its formation. following are the steps for the registration of firm
Registration form for incorporation of Firm ( form no.1 and specimen of affidavit)
Certified True copy of partnership deed
Ownership proof of principle place of business
Documents required for registration of partnership firm
1. Two color photos of all partners
2. ID proofs of all partners like PAN card, Aadhaar card, Passport, Driving License
3. Current office address proof like valid rental agreement, property document
4. Five suggested names of business as well as nature of business
5. Partnership deed
6. Authorized signatory name
Advantages of partnership firm
a) Easy formation : Partnership firm is like a contractual agreement between partners to run the business and share profits from the business.Registration of partnership firm is optional not mandatory and there will be minimum legal requirements.
b) Tax Advantage : Income from partnership firm is taxable in the hands of firm not in the hands of share holders. Remuneration to partners is a claimable expense.
c) More Capital : As more than one person involved in partnership firm there will be more capital in the hands of firm. Partners can be sleeping partners as well as working partners. Hence it can add people who can invest without any problem.
d) Reduction of risk : As there are more than one person carrying on a business, in case of losses every partner is liable to share the business loss hence the share of loss will be less compared to loss in sole proprietorship.
Disadvantages of Partnership firm
a) More than one person : There should be at least two person to start partnership firm. Ten persons for banking business and twenty people for non banking business.
b) Profit sharing : As more than one person involved profit has to shared between people. Share of profit will be low compared to sole proprietorship.
c) Unlimited Liability : Each partner has unlimited liability in case of losses of firm. Every partner is individually liable for obligations of firm.
d) Restrictions on Transfer of shares : No partner shall transfer the share unless otherwise accepted by all the partners.
What is Partnership deed
Partnership deed is a document in which the rights and obligations of all the partners of partnership firm is written is called as partnership deed. The partnership agreement should be written. Agreement may be oral or written.The partnership deed contains
1. Details of Name and address of all partners
2. Date on which the business is commenced
3. Nature of business on which partners agreed to carry
4. Amount of Remuneration to be paid to Partners
5. Total amount of capital contributions
6. Percentage of Profit sharing of each partner
7. Percentage of Interest on capital or partners loan etc,.
8. Details of rules to be followed in case of death, retirement and admission
9. All the duties, powers and obligations of each partner
Partners can add any other additional details as they agreed other than above. Any remuneration paid shall not be allowed as deduction/expenditure unless it is specified in partnership deed.