Income Tax Return-5 Filing Annual Compliance- Partnership Firm

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Introduction:

An income tax return refers to a document highlighting a party’s income, profits and losses, details of tax refund or tax liability, and other deductions. One of its forms, the Income Tax Return-5 (ITR-5) form is filed by a specific community of taxpayers, and any return of income filed in this form will include all income other than the income exempted by Section 11, Income Tax Act, 1961.[1]

This return form is applicable for the financial year 2020-2021.

Instructions For Filing ITR-5

All the parties who need to file ITR-5 must adhere to a set of instructions, some of which are as follows:

  • When a schedule is not applicable, mention it as “N/A”.
  • If any item seems inappropriate on the form, do the same as the previous instruction and write “N/A” against the item.
  • For figures of zero value, write “Nil”.
  • For any negative figures or losses, denote a negative sign (“—”) against that figure.
  • Rounding off of any number is highly important. Therefore, for all general figures, the round off should be to the nearest rupee, while for total income, loss and tax payables, the round off should be to the nearest multiple of ₹10.

Who is Eligible for the Form, and Who is Not?

ITR-5 can be filed by the following parties:

  1. A firm.
  2. An Association of Persons
  3. Limited Liability Partnerships (LLPs)
  4. BOIs- Body of Individuals
  5. Artificial Juridical Persons referred under Section 2(3)(vii) (now amended).
  6. Estate of insolvent
  7. Estate of deceased
  8. Investment fund referred under Section 139(4F)[2]
  9. Local authorities are referred under Section 160(1)(ii)[3] or Section 160(1)(iv)[4].
  10. Cooperative societies
  11. Societies registered under Societies Registration Act, 1860, or any other state law
  12. Business trust referred under Section 139(4E)[5]

However, any individual who has to file income tax returns under Sections 139(4A)[6], 139(4B)[7], 139(4C)[8] or 139(4D)[9] are not eligible to file the form.

Structure of ITR-5

PartsExplanation
PART-A 
GENGeneral Information
BSBalance sheet as per the last date of the previous financial year
Manufacturing accountThe manufacturing account for the previous financial year
Trading accountThe trading account for the previous financial year
Profit & Loss accountThe profits and losses gained/lost during the previous financial year
OIOther information (only applicable in cases where auditing is not required)
QDQuantitative details (only applicable in cases where auditing is not required)
PART B 
TIComputation of total income
TTIComputation of tax liability on total income

Another section of the form, Part C, consists of the following details about tax payments:

  1. Payment of advance tax and tax on self-assessment tax.
  2. Tax deducted at the source of income other than salary, under Sections 16A, 16B and 16C[10] of the Income Tax Act.
  3. The tax is collected at the source.

Aside from these three parts, there are numerous schedules, which are as follows:

  • Schedule-HP: Computation of income under the head Income from House Property
  • Schedule-BP: Computation of income under the head “profit and gains from business or profession”
  • Schedule-DPM: Computation of depreciation on plant and machinery under the Income Tax Act
  • Schedule DOA: Computation of depreciation on other assets under the Income Tax Act
  • Schedule DEP: Summary of depreciation on all the assets under the Income-tax Act
  • Schedule DCG: Computation of deemed capital gains on the sale of depreciable assets
  • Schedule ESR: Deduction under section 35 (expenditure on scientific research)[11]
  • Schedule-CG: Computation of income under the head Capital gains.
  • Schedule-OS: Computation of income under the head Income from other sources.
  • Schedule-CYLA: Statement of income after set off of current year’s losses
  • Schedule-BFLA: Statement of income after set off of unabsorbed loss brought forward from earlier years.
  • Schedule- CFL: Statement of losses to be carried forward to future years.
  • Schedule –UD: Unabsorbed Depreciation
  • Schedule ICDS: Effect of income computation disclosure standards on profit
  • Schedule- 10AA: Computation of deduction under section 10AA[12]
  • Schedule- 80G: Details of donation entitled for deduction under section 80G[13]
  • Schedule- 80GGA: Details of donation for scientific research or rural development
  • Schedule- RA: Details of donations to research associations etc.
  • Schedule- 80IA: Computation of deduction under section 80IA
  • Schedule- 80IB: Computation of deduction under section 80IB
  • Schedule- 80IC/ 80-IE: Computation of deduction under section 80IC/ 80-IE.
  • Schedule 80P: Deductions under section 80P
  • Schedule-VIA: Statement of deductions (from total income) under Chapter VIA.
  • Schedule –AMT: Computation of Alternate Minimum Tax payable under section 115JC
  • Schedule AMTC: Computation of tax credit under section 115JD
  • Schedule-SI: Statement of income which is chargeable to tax at special rates
  • Schedule IF: Information regarding partnership firms in which you are a partner
  • Schedule-EI: Statement of Income not included in total income (exempt incomes)
  • Schedule PTI: Pass-Through Income details from business trust or investment fund as per section 115UA, 115UB
  • Schedule TPSA: Secondary adjustment to transfer price as per section 92CE(2A)
  • Schedule FSI: Details of Income from outside India and tax relief
  • Schedule TR: Details Summary of tax relief claimed for taxes paid outside India
  • Schedule FA: Details of Foreign Assets and Income from any source outside India
  • Schedule GST: Information regarding turnover/gross receipt reported for GST
  • Schedule DI: Schedule of tax-saving investments or deposits or payments to claim deduction or exemption in the extended period from 1 April 2020 until 30 June 2020

How to File the ITR-5 Form?

Through online means, the ITR-5 can be filed through the e-filing web portal of the Income Tax Department.

The verification of such filing can be done in the following ways:

  • Digital signature
  • Authentication by way of Electronic Verification Code (EVC)
  • Sending the duly signed Form ITR-5 (in hard copy) by post to the CPC address in Bangalore.

The steps for filing this form are as follows:

  1. Visit the e-filing portal of the Income Tax Department at https://www.incometax.gov.in/iec/foportal
  2. Transfer all required data in the form and digitally sign the form (in case of e-verification) or print out two copies and sign both.
  3. (Only in the case of offline verification) send a duly signed copy to the CPC address given as follows:
  • Centralised Processing Centre,
  • Income Tax Department,
  • Bengaluru- 560500

(Ensure that the form should reach the office within 120 days from the date of e-filing the return.)

ITR-5 Form Filing for Partnership Firm

Under the Income Tax Act, 1961, any partnership firm, be it registered or unregistered, is liable to pay the following tax percentages:

  • 30% income tax
  • 12% surcharges (in cases where taxable income is above ₹1 crore)
  • 12% interest on capital
  • 4% Health And Education CESS

In addition, just like Limited Liability Partnerships (LLPs) and private limited companies, a partnership firm is also required to pay 12% alternate minimum tax which cannot be less than 18.5% of adjusted total income, i.e., income after various additions and deductions.

It must be noted that ITR-5 is used to file tax returns for the partnership firm, not the partners of the firm.

The deadline for filing ITR-5 by any partnership firm depends on whether it is being audited or not. If the audit is required, then the date cannot extend beyond 31st October.

However, if the audit is not required, the firm must file this form latest by 31st July.

E-Filing of Audit Reports

Tax audit refers to the process of cross-examining the books of accounts of the taxpayer by a certified Chartered Accountant, as per the guidelines given in the Income Tax Act, 1961.

The main person of this is to avoid any unlawful means, such as tax evasion or fraud, and verify the accuracy of all the financial statements of the firm.

Section 44AB[14] of the Income Tax Act deals with this procedure, and is applicable in the following situations:

  • Where the income or turnover of the current financial year is more than the taxable limit permitted.
  • Where the personal income is lower than the taxable income, but the business income surpasses the limit.
  • Where, in special circumstances, while the income does cross the limit, the Chartered Accountant requires the accounts of the individual to be audited, which is only possible by passing an order under Section 142(2A)[15] of the Income Tax Act, 1961.

In case a person is required to get his accounts audited by the Chartered Accountant under another law (other than Income Tax Act, 1961), then, he should comply with the provisions of Section 44AB, and the taxpayer should get the accounts audited on or before 30th September and furnish the report for such audit.

According to Rule 6G of the Income Tax Act, a tax audit report is to be furnished in Forms 3CA and 3CB, the particulars required to be furnished should be enlisted in Form 3CD.

Forms 3CA and 3CD are combined and filed together when the businesses’ accounts have already been audited under another tax law, while Forms 3CB and 3CD are combined when the businesses’ accounts have not been audited.

The steps for e-filing a tax audit report under Section 44AB are:

  1. The Chartered Accountant registers themselves on the income tax e-filing website for certification.
  2. The assessee/taxpayer registers themselves as well on the same website with PAN number and other crucial details.
  3. After registration, the taxpayer adds the now-certified Chartered Accountant as their Assessing Officer.
  4. After the success of the third step, the Accountant downloads the required forms, i.e., either Form 3CA or 3CB (adding Form 3CD with either form). Once this is completed, and the form is filled, an XML document is generated, which consists of the complete details of the taxpayer’s financial documents.
  5. The approval of the taxpayer is required for uploading the tax audit report, and holds the full power of either accepting or rejecting the report.

However, if the audit report is not filed before the deadline, the Chartered Accountant can impose a penalty (under Section 271B[16]) of 0.5% of the total sales, turnover or gross receipts.

Amendments Made in the Original ITR-5 Form for the Year 2020-21

  • While furnishing audit information, the option of either PAN or Aadhaar number of the Auditor is provided.
  • A new Schedule, “Schedule DI”, is incorporated, where it must be mentioned if a statement is to be filed for an investment, deposit or payments for the period between 1st April, 2020 and 30th June, 2020, for the purpose of claiming a deduction under Chapter VIA[17].
  • Regarding information about the audit, certain other details need to be asked, such as:
    • Whether the assessee is declining his income under Section 44AE/44B/44BB/44AD/44ADA/44BBA/44BBB only?
    • If the answer to the previous question is no, then did the total sales/turnover/gross receipts of the year exceed ₹1 crore?

(If yes, did the aggregate of all amounts received, including received for sales, turnover or gross receipts during the previous year, in cash, exceed5% of the total amount?)

  • While there is no change in the applicability criteria, there were certain changes in the form, some of which are:
    • In case of full disclosure of unlisted equity shares, or particular directorship in a company, a new column, labelled “Type of Company” is added in the section “Basic Information”.
    • Additional disclosure in “Other Information”, such as Point 11(da) which mentions any sum payable by the assess as interest on any loan or borrowing from a deposit-taking non-banking financial company, and Point 17, where the assessee is exercising an option under Section 92CE(2A) on his own discretion, are given.
    • A new Schedule labelled “From the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under section 112A”, along with its counterpart, “115AD(1)(b)(iii) proviso”, which assists non-residents are added.
    • A new Section labelled “Computation of income from life-insurance business referred to in Section 115B” is added under “Computation of Income from Business and Profession”.
    • Additional “Bifurcation of loss” details need to be supplied in two columns, namely Normal and PTI in Schedule “CFL”.

Conclusion

Income tax is a prime duty of every citizen of India, and both individuals and businesses are liable to pay this while adhering to all the rules and regulations imposed by the Income Tax Department. On the basis of tax liability, seven forms are generated, each with a different, specific purpose. ITR-5 is one of those forms. Used by entities such as firms, Limited Liability Partnerships, Body of Individuals, Association of Persons, amongst others, ITR-5 has a rather expansive structure with an important audit report attached to it, and major amendments done over the years, which my article has elucidated to great detail.

References:

Other Sources:

[1]Sreeram Viswanath , Section 11, Income Tax Act, INDIAFILINGS, https://www.indiafilings.com/learn/section-11-income-tax-act/

[2]Section 139 of Income Tax Act: Applicability, Due Dates and Return Filing, PAISABAZAAR.COM, https://www.paisabazaar.com/tax/section-139-of-income-tax-act/

[3]What are Legal representatives? Who is Representative assessee? Section 159 and 160 of Income Tax Act 1961, AAPTAXLAW.COMhttps://www.aaptaxlaw.com/income-tax-act/section-159-160-income-tax-act-legal-representatives-representative-assessee-sec-159-160-of-income-tax-act-1961.html

[4] Ibid.

[5] Supra note 2.

[6]Section 139 of Income Tax Act: Applicability, Due Dates and Return Filing, PAISABAZAAR.COM,https://www.paisabazaar.com/tax/section-139-of-income-tax-act/

[7] Ibid.

[8] Supra note 6.

[9] Ibid.

[10] Anjana Dhand, Section 16- Standard Deduction, Entertainment Allowance and Professional Tax¸ SCRIPBOX, https://scripbox.com/tax/section-16/

[11]CA Sandeep Kanoi, Section 35 Deduction for expenditure on scientific research, TAXGURU, https://taxguru.in/income-tax/section-35-deduction-expenditure-scientific-research.html

[12]IndiaFilings, Section 10AA Deduction, INDIAFILINGS, https://www.indiafilings.com/learn/section-10aa-deduction/

[13]Donations Eligible Under Section 80A And 80GGA, CLEARTAX, https://cleartax.in/s/donation-under-section-80g-and-80gga

[14]CA Komal Gupta, Tax audit under Section 44AB, TAXGURU,https://taxguru.in/income-tax/tax-audit-section-44ab.html

[15]Akash Dhanuka, Special Audit – Section 142(2A) – Income Tax Act, 1961, TAXGURU, https://taxguru.in/income-tax/special-audit-section-1422a-income-tax-act-1961.html

[16]Sreeram Viswanath, Section 271B – Income Tax Act, INDIAFILINGS, https://www.indiafilings.com/learn/section-271b-income-tax/

[17]Amitava Chakrabarty, Deductions under Chapter VI A of Income Tax Act: Know how much tax may be saved, FINANCIAL EXPRESS, https://www.financialexpress.com/money/income-tax/deductions-under-chapter-vi-a-of-income-tax-act-know-how-much-tax-may-be-saved/1997441/

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