In India, partnership firms are subject to specific income tax compliance requirements, governed primarily by the Income Tax Act, 1961, and regulations issued by the Income Tax Department.

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PAN and Registration:

Every partnership firm must obtain a Permanent Account Number (PAN) from the Income Tax Department. Additionally, partnership firms can optionally register under the Indian Partnership Act, 1932. However, registration under this Act is not mandatory.

Assessment as a Separate Entity:

Partnership firms are not considered legal entities separate from their partners for income tax purposes. Instead, they are assessed as separate entities, and their income is taxed in the hands of the partners.

Income Tax Return Filing:

Partnership firms are required to file income tax returns annually with the Income Tax Department. The applicable form for filing income tax returns for partnership firms is Form ITR-5. The income tax return must include details of the firm's income, deductions, and other relevant financial information.

Audit Requirements:

Partnership firms are generally required to undergo a tax audit if their total turnover exceeds INR 1 crore in any financial year. Additionally, if the firm's total income exceeds the basic exemption limit (currently INR 2.5 lakh for individuals below 60 years of age), it is also required to undergo a tax audit.

Taxation of Partnership Income:

Partnership firms are taxed at the flat rate of 30% (plus applicable surcharge and cess) on their total income. However, this tax rate is subject to certain exceptions and deductions.

Share of Profits for Partners:

The profits of the partnership firm are allocated among the partners based on the terms of the partnership deed. Each partner is required to include their share of the firm's profits in their individual income tax return.

Taxation of Partner's Income:

Partners are taxed on their share of the partnership income at their individual tax rates. The share of profits received by partners from the partnership firm is taxed under the head "Income from Business or Profession" in their individual income tax returns.

Tax Deduction at Source (TDS):

Partnership firms are required to deduct tax at source (TDS) on certain payments made to partners, such as interest, salary, commission, etc., if such payments exceed specified thresholds. The TDS must be deposited with the government and appropriate TDS returns filed.

Maintenance of Books of Accounts:

Partnership firms must maintain books of accounts and other relevant financial records as per the provisions of the Income Tax Act. Proper record-keeping is essential for complying with tax audit requirements and filing accurate income tax returns.

Compliance with Goods and Services Tax (GST): Depending on the nature of the business, partnership firms may also need to comply with GST regulations, including registration, filing of returns, and payment of GST on taxable supplies.

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