Both individuals and partnership firms are required to comply with Income tax laws. In India, Income tax laws are governed by the Income Tax Act, 1961, and the Income Tax Rules, 1962 which prescribes the provisions relating to the computation, assessment, and collection of income tax in India. While both individuals and partnership firms are taxed under the income tax laws in India, there are significant differences in the way they are taxed and the compliance requirements that they must meet. In this blog, we’ll discuss the the same.
Partnership firms and individual assessee have different income tax compliance requirements in India. Here are some of the key differences:
|Parameter||Individual Assessee||Partnership Firms|
|Taxation||Individuals are taxed under the Income Tax Act, 1961, which provides for a progressive tax system. This means that individuals are taxed at different rates depending on their income levels. The current tax rates for individuals range from 0% to 30%.||On the other hand, partnership firms are taxed as a separate entity under the Income Tax Act. They are subject to a flat tax rate of 30% on their total income. However, partnership firms can also opt to be taxed as a “pass-through entity” under the Income Tax Act, which means that the income of the firm is taxed in the hands of the partners at their individual tax rates.|
|Compliance Requirements||The compliance requirements for individuals and partnership firms differ significantly. Individuals are required to file their income tax returns annually if their income exceeds the threshold limit specified in the Income Tax Act. The threshold limit varies depending on the age and income level of the individual. For the financial year 2021-22, the threshold limit for individuals below the age of 60 years is Rs. 2.5 lakh, for individuals between the age of 60 and 80 years is Rs. 3 lakh, and for individuals above the age of 80 years is Rs. 5 lakh.||In contrast, partnership firms are required to file their income tax returns even if their income is below the threshold limit specified in the Income Tax Act. Partnership firms are also required to maintain proper books of accounts and get their accounts audited if their turnover exceeds Rs. 1 crore in a financial year. The audit report must be filed along with the income tax return.|
|Advance Tax||Individuals are also required to pay advance tax on their estimated income during the financial year. Advance tax is paid in installments, and failure to pay the advance tax can attract penalty and interest charges.||Partnership firms are also required to pay advance tax on their estimated income during the financial year. However, unlike individuals, partnership firms are required to pay advance tax in four installments.|
|Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) Provisions||Individuals are required to deduct TDS on certain types of income, such as salaries, rent, and professional fees. Individuals are also required to collect TCS on certain types of transactions, such as sale of scrap, sale of timber, and sale of minerals.||In contrast, partnership firms are required to deduct TDS on certain types of payments made to contractors, professionals, and other parties. Partnership firms are also required to collect TCS on certain types of transactions, such as sale of minerals, sale of scrap, and sale of tendu leaves.|
Individuals are subject to a progressive tax system and have lower compliance requirements, while partnership firms are taxed at a flat rate and have higher compliance requirements. Overall, partnership firms and individual assessee have different income tax compliance requirements and it is important to understand these differences to comply with the applicable provisions of the and to avoid any penalties or legal consequences.
The income tax laws in India are complex, and it is advisable to seek professional assistance to comply with the tax laws and avoid any penalties or legal consequences. If you’re trying to find a reliable and secure expert to help with your Income tax compliances, then look no further than SuperCA. By choosing us, you can not only save time and money, but also rest assured that your tax filing process will not be a 'file it and forget it' task. Our team of tax professionals carefully examine every tax return that is submitted, providing support throughout the entire process, including preparation, filing, assessment, scrutiny, rectification, and refund.