Partnership Tax Return Filing in India

How is a partnership firm taxed in India?

A firm is assessed as a distinct person. Its business income is computed after allowing business expenses, including remuneration and interest paid to partners within the statutory limits, and the resulting total income is taxed at a flat rate — thirty per cent for a firm or LLP — plus surcharge where total income exceeds the prescribed limit and health and education cess on top.

Once the firm has paid tax, the partners' share of the firm's profit is not taxed again in their hands. What is taxable to a partner is the remuneration, interest, bonus or commission received from the firm, and only to the extent the firm was allowed to deduct it. Amounts disallowed to the firm are correspondingly not treated as the partner's business income.

Surcharge applies at the prescribed rate where total income exceeds ₹1 crore, subject to marginal relief, and an alternate minimum tax computed on book profit can apply to a firm or LLP in specified circumstances. Rates, surcharge thresholds and the alternate minimum tax conditions are set by the Finance Act each year, so confirm the figures for the year you are filing rather than carrying forward last year's computation.

Which ITR form does a partnership firm file?

A firm files ITR-5, the return prescribed for firms, LLPs, associations of persons, bodies of individuals and certain other non-individual, non-company assessees. The same form is used whether the firm is registered under the Partnership Act or not, and whether or not it is under tax audit.

A firm files even in a loss year and even in a dormant year, because filing is what preserves the right to carry a loss forward. See ITR-5 filing for the form itself, and note that an LLP carries MCA obligations on top through LLP annual filing and Form 11.

What is the due date for a partnership firm's tax return?

The due date depends on whether the firm's accounts have to be audited. Non-audit firms share the business-income date, which for assessment year 2026-27 was confirmed as 31 August 2026 rather than the 31 July date applying to individuals without business income. Firms under tax audit file later, with the audit report due a month before the return.

These dates are extended by the Central Board of Direct Taxes with some regularity, and the non-audit business date in particular has moved in recent years. Treat the table as indicative for the year shown, confirm the current date before planning around it, and do not rely on an extension that has not been notified.

When does a partnership firm need a tax audit?

A firm has no statutory audit under company law — an unregistered or registered partnership firm files nothing with the Registrar of Companies. The audit that matters is the tax audit, which applies once business turnover crosses the prescribed threshold, with a substantially higher threshold available where both cash receipts and cash payments each remain within a small prescribed percentage of the totals. Professions carry a separate flat threshold.

A firm may be eligible for presumptive taxation in certain cases, and a resident firm that had opted into the scheme but does not opt for it in the current year while having opted in one of the preceding years can find the book-keeping and audit requirements revived. Limited liability partnerships are outside the presumptive business scheme.

Thresholds and the conditions attached to the higher limit have changed more than once, and the penalty for missing a required audit is computed as a percentage of turnover up to a prescribed cap. We test applicability against the provisions for the year rather than a remembered figure.

How is the firm's taxable income computed?

1. 1.Start from the net profit in the firm's profit and loss account for the year
2. 2.Add back expenses disallowed under the Act, including personal or capital items
3. 3.Add back remuneration, interest, bonus or commission to partners in excess of the statutory limits
4. 4.Add back partner payments not authorised by the partnership deed, which are disallowed in full
5. 5.Add back a proportion of expenses on which tax was required to be deducted at source but was not
6. 6.Adjust for depreciation computed under the Act rather than as booked
7. 7.Adjust for disallowances relating to cash payments above prescribed limits and unpaid statutory dues
8. 8.Compute book profit where relevant, since the partner remuneration limit is a function of it
9. 9.Set off brought-forward business losses and unabsorbed depreciation as permitted
10. 10.Apply the flat tax rate, then surcharge where the threshold is crossed, then cess
11. 11.Check whether the alternate minimum tax computation produces a higher liability
12. 12.Reduce by advance tax paid and tax deducted at source to arrive at the balance payable

Book profit is a defined computation, not simply the accounting profit, and getting it wrong cascades: it changes the allowable remuneration, which changes the firm's income, which changes each partner's taxable receipt. It is the single figure most worth double-checking.

How much remuneration can be paid to partners?

Remuneration to partners is deductible only where it is paid to a working partner, is authorised by and in accordance with the partnership deed, and does not exceed the statutory ceiling computed on book profit. The ceiling is expressed as the higher of a fixed amount or a percentage of book profit on the first slab of book profit or where there is a loss, plus a lower percentage of the balance of book profit.

The limits were liberalised by the Finance (No. 2) Act, 2024 with effect from assessment year 2025-26: the first slab of book profit against which the higher percentage applies was widened, and the fixed floor amount was raised. Interest to partners is separately deductible and is capped at the prescribed simple rate per annum — twelve per cent — on the deed-authorised amount.

Excess over the cap is disallowed to the firm and is correspondingly not taxed as the partner's business income. These limits have been revised, so confirm the current computation for the year rather than applying an older formula. Interest and remuneration paid to a partner who is not a working partner, or paid for a period before the deed authorised it, is disallowed outright.

What is section 194T TDS on payments to partners?

This is the most significant recent change for firms. Introduced by the Finance (No. 2) Act, 2024 and effective for payments made or credited on or after 1 April 2025, the provision requires a firm — including an LLP — to deduct tax at source at ten per cent on sums paid to a partner in the nature of salary, remuneration, commission, bonus or interest, where the aggregate to that partner exceeds ₹20,000 in the financial year.

• Applies to remuneration, salary, bonus, commission and interest paid or credited to a partner
• Deduction is at credit to the partner's account or actual payment, whichever is earlier — including a credit to the capital or current account
• The threshold is tested on the aggregate for the partner for the financial year, not per payment
• Share of profit is outside the provision
• A genuine withdrawal against capital or current account, and a true reimbursement of expenses, are not covered
• Tax must be deducted on the amount paid or credited, whether or not it is deductible to the firm within the remuneration limits
• A higher rate applies where the partner has not furnished a valid PAN
• Tax deducted is deposited monthly and reported in the quarterly non-salary statement, with certificates issued to partners

Two operational consequences follow. First, a firm that historically decided partner remuneration at year end now has to either credit remuneration periodically and deduct as it goes, or deduct on a year-end lump sum and live with the timing. Second, the firm needs a TAN and a running TDS process even if it had no other deduction obligation — see TAN registration and TDS return filing.

Why does section 194T create a mismatch in the partner's return?

Because the two provisions measure different amounts. Tax is deducted on the gross sum paid or credited to the partner, but the partner is taxable only to the extent the firm was allowed the deduction — the excess disallowed to the firm is not the partner's business income. So the tax credit statement can show a larger figure than the income the partner actually offers.

The practical handling is to disclose the full gross receipt in the partner's return and claim the reduction for the portion disallowed to the firm, with the computation retained. Filing the lower figure without explanation is what generates an automated mismatch notice, and reconciling it later costs far more than documenting it at the time.

The cleanest fix is upstream: set remuneration within the statutory limits in the first place, so gross paid and taxable amount coincide. That requires the deed to be drafted with the limits in mind and the firm to estimate book profit through the year rather than discovering it in September.

Why does the partnership deed decide the tax outcome?

Deductibility of partner payments hangs entirely on the deed. Remuneration and interest are allowed only if authorised by, and in accordance with, the deed, and only for a period falling after the date of the deed that authorises them. A firm that pays remuneration on an informal understanding, or pays more than the deed permits, loses the deduction regardless of commercial justification.

1. 1.Name the working partners expressly, since only they can receive deductible remuneration
2. 2.State the remuneration — an amount, or a formula tied to book profit — with enough precision to be computed
3. 3.State the rate of interest on capital, kept within the prescribed statutory rate
4. 4.Set the profit-sharing ratio unambiguously
5. 5.Date the deed and any supplementary deed, because authorisation does not operate retrospectively
6. 6.Execute a supplementary deed before changing remuneration or interest, not after
7. 7.Provide for admission, retirement and death of a partner, and for revaluation of assets on such events
8. 8.Keep the deed consistent with how the books actually record partner accounts

The most common and most expensive error is a retrospective supplementary deed increasing remuneration after the year's profit is known. Authorisation has to precede the period it covers. See partnership firm registration for the deed and registration itself.

What is the annual compliance calendar for a partnership firm?

The calendar below is indicative, reflects the position for the 2025-26 financial year and assessment year 2026-27, and each line applies only where the relevant obligation or registration exists. Dates are extended from time to time, so confirm each for the year concerned.

An ordinary partnership firm has no MCA filings at all. An LLP does, and missing them is expensive because the late fee for LLP filings accrues daily — which is why the two structures should not be run off the same calendar.

What documents are needed to file a firm's return?

• Partnership deed and every supplementary deed, with dates
• Firm PAN, and TAN where tax is deducted at source
• Audited or finalised financial statements for the year
• Trial balance, ledgers and the partner capital and current account statements
• Book profit computation supporting the partner remuneration claim
• Bank statements for all accounts held by the firm
• GST returns and a reconciliation of books turnover to reported turnover
• TDS challans and quarterly statements, including deductions on partner payments
• Tax credit statement and annual information statement for the firm
• Advance tax challans for the year
• Fixed asset register with additions, disposals and depreciation working
• Stock valuation working, debtor and creditor ageing, and confirmations for material balances
• PAN details of every partner, and their profit-sharing ratios

Partner PANs and ratios matter more than they used to, because partner payments are now reported in the quarterly TDS statement against each PAN. A wrong PAN produces both a higher deduction rate and a credit the partner cannot claim.

What are the penalties for late filing by a firm?

• A late filing fee where the return is filed after the due date
• Interest on unpaid tax from the due date until payment
• Interest for shortfall or deferment of advance tax instalments
• Loss of the right to carry forward business losses and unabsorbed amounts where the return is late
• A penalty computed as a percentage of turnover, up to a prescribed cap, where a required tax audit was not obtained
• Disallowance of a proportion of an expense, including partner remuneration and interest, where tax was not deducted at source on it
• Interest and a daily late fee on TDS defaults and late quarterly statements
• Penalty for an incorrect statement, and prosecution exposure for prolonged failure to deposit tax already deducted

The disallowance point is the one that has grown teeth with the partner-TDS provision. A firm that pays partner remuneration without deducting tax now risks losing part of the deduction for that remuneration, which inflates the firm's taxable profit and produces a tax bill at the flat rate on money it has already paid out. Penalty amounts and rates change with each Finance Act, so exposure is quantified against the provisions in force for the period.

How does the Income-tax Act, 2025 affect a firm's filings?

The Income-tax Act, 2025 came into force on 1 April 2026, save as otherwise provided, with the Income-tax Rules, 2026 commencing on the same date. Income up to financial year 2025-26 remains governed by the 1961 Act, so the firm's return for assessment year 2026-27 — and the audit report in the prescribed forms under the old Act — are filed under the 1961 Act even though the filing happens after 1 April 2026.

From financial year 2026-27 the new Act applies, with consolidated and renumbered provisions. The partner-TDS obligation carries forward substantively — it has been folded into the consolidated non-salary withholding provision rather than removed — so the deduction on partner payments continues, but the section reference quoted on challans and statements for transactions from 1 April 2026 changes.

Practically: keep the two years demarcated in the books, make sure challans quote the correct year and the correct provision, reconcile the tax credit statement separately for each year, and keep a section mapping to hand. Where a position depends on a transitional provision, we confirm it against the Act and the notified rules rather than commentary. If in doubt, raise it through online CA consultation or contact.

How does a firm compare with an LLP or a company for tax?

A firm and an LLP are taxed on essentially the same basis — a flat rate with surcharge and cess, with partner remuneration and interest deductible within the same statutory limits and the same partner-TDS obligation. The difference is liability and filings rather than tax.

Rates and thresholds change annually, so this compares structure rather than quoting current numbers. Where partners want limited liability without a company's governance load, LLP registration is usually the right comparison; where outside investment or an option pool is in view, private limited company registration is.

Why choose Arjun Filings for partnership tax return filing?

Arjun Filings runs partnership tax return filing as a checklist-first engagement: a qualified CA or CS scopes the work, tells you exactly which documents are needed, and reviews every form before it is signed and submitted. You get a named specialist, a status update at each stage, and a compliance calendar for whatever comes next.

• Reliable desk for partnership tax return filing
• Input checklist each cycle
• Deadline tracking
• Human + AI support when questions arise