Mandatory Annual Compliances of a Partnership Firm and Proprietorship Firm

While we engage in any of the business entities, there is a common confusion in our minds regarding the compliances that need to be followed in order to run the business smoothly.

Here, we are going to discuss the required Annual Compliances for Partnership Firm along with the Annual Compliances for Proprietorship Firm.

Annual Compliance for Partnership Firm

Before we get into the details about the Annual Compliances of a Partnership Firm, let’s first understand what partnership is. Basically, partnership, as the name suggests, is an agreement that is signed between two or more people who agree to share all the profits and losses of the business that they are the part of. Collectively they are called firm and all people are termed as partners.

There are three major elements within the partners:

•          An agreement among all the partners

•          Agreed to share all profits of the business

•          The business must be worked upon by all members working as partners or by the concerned person who is acting for all.

Common compliances

The major common Compliances of a Partnership Firm includes:

1.         Registration of the company in Form I within one year of company setup.

2.         Change in the name of the firm or the business’s nature in Form II within the time period of 90 days.

3.         If any branch is opened and closed to be filed in form III with a time of 90 days.

4.         Change in name of partners or address to be filed in form IV within 90 days

5.         Change in Constitution to be filed in form V within 90 days.

A partnership firm has to compulsorily file the annual tax return with the Income tax department. Other than this, there are few more tax compliances like service tax filing and VAT that has to be filed according to the business’s performance. A tax audit has to be done on the basis of the company’s turnover.

If the annual sales of the partnership firm are more than 1 Crore Rs, it is required to get the audit done. Along with this, the firm has to adhere to the TDS regulation and the GST filing.

The partnership firm’s ITR is filed once all the documents required for ITR-5 are collected and the audit document is prepared in accordance with the income tax act. In the case of no audits, the ITR filing date is 31st July and with audit, it is 30th September.

Annual Compliance for Proprietorship Firm

Proprietorship refers to the kind of business that is owned and managed by a single person. He or she is liable for all the profits and losses that occur in the business. This is because the identity of the organization is considered the owner’s identity.

Compliances to be followed:

The Annual Compliances for Proprietorship Firm includes preparation of the tax audit and filing of the income tax return with the IT department. If the annual turnover of the firm is more than 2.5 lakhs, the ITR needs to be filed by the firm. If in case the annual turnover of the firm is more than 1 Crore, the firm needs to get the tax audit done. The tax audit has to be filed also in the case when the business comes under the presumptive taxation scheme whether the turnover is lower than the stated amount.

Once the documents are being submitted for the firm, the balance sheet is prepared. The ITR is then filed for the firm on the basis of business accounts. If no audit is required for the proprietorship firm, then the ITR must be filed by 31st July otherwise in case of an audit, it has to be filed last by 30th September.

Documents required for annual compliance filing of partnership and proprietorship

There are similar documents needs for the compliance of both the partnership as well as Proprietorship Firms. They are as below:

•          Invoices of all the sales and purchases during the entire year

•          Invoices of all the other expenses that have been incurred during the whole year

•          Bank statements of all the banks' accounts which are in the name of all the partners in case of partnership firm and statement of bank account which is in the name of the firm in case of proprietorship firm.

•         Copy of the TDS challans in case you have any.