Home > Income Tax > Help Center > Business / Partnership Income Tax GuideLast Updated: March 16th 2023
Under Income Tax Act, a partnership firm is defined as " Persons who have entered into a partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name' ".
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Registration of the firm is optional and is not mandatory. It can be registered at any time after its formation. A registered Partnership firm can avail certain benefits like below
The partners of the registered Partnership Firm can bring third parties to the court for resolution of disputes arise during the Business or any other matter relating to the Partnership Firm.
As none knows when the dispute between the Partners arises, whether for the sharing of profits or any other matter regarding operations of the Partnership Firm. The resolution of any dispute is best resolved by the Court of Law.
Compared to an unregistered Partnership Firm, a Partnership Firm which has completed Registration of Partnership Firm enjoys higher credibility. Although both registered and unregistered Partnership Firms are legal and valid under the given Act, the Registered Firm is highly preferred by authorities over unregistered one.
The conversion of the Partnership Firm into any other entity such as Private Company or LLP i.e. in corporate structure can be easily completed, except in the case of assets registered under the existing firm, which requires valuation and related complexity before moving them to the higher compliance entity such as LLP.
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 ( w.e.f AY 2019-20 education Cess secondary and higher education Cess @ 3% replaced by Health and Education Cess 4% )
|Flat 30% tax||30,00,000|
|Health and educational Cess 4%( From A.Y 2019-20)||1,20,000|
|Total Tax Payable||43,20,000|
Capital gains arising from the sale of any asset by the partnership firm are taxable under section 112, if it is short-term capital gain tax rate as per normal tax slab, if it is long-term capital gain tax rate is 20%, in case of sale of shares and mutual funds the tax rate for short-term gain is 15%, for long-term income would be exempted from the levy of tax under section 10(38).
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.
Unabsorbed loss including depreciation of the firm will not be apportioned amongst the partners and will be carried forward by the firm only.
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