Section 13 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 13 sets the default money rules between partners: no salary, equal share in profits and losses, interest on capital only out of profits, six per cent on extra advances, an indemnity from the firm for proper payments, and a duty to compensate the firm for wilful neglect. Every one of these applies subject to contract between the partners, so the deed can change them.
If the deed is silent: a partner is not entitled to remuneration for taking part in the business; partners share profits equally and contribute equally to losses; interest on capital is payable only out of profits; a partner who advances money beyond the capital he agreed to subscribe is entitled to interest at six per cent per annum; the firm indemnifies a partner for payments and liabilities in the ordinary and proper conduct of business or in an emergency; and a partner must indemnify the firm for loss caused by his wilful neglect. All of this can be changed by the deed.
Clauses at a glance
| Clause | Default rule |
|---|---|
| (a) | No remuneration for taking part in the conduct of the business |
| (b) | Equal share in profits; equal contribution to losses |
| (c) | Interest on capital, if a partner is entitled to it, payable only out of profits |
| (d) | Six per cent per annum interest on payments or advances beyond the agreed capital |
| (e) | Firm indemnifies a partner for payments made and liabilities incurred in the ordinary and proper conduct of business, and for acts done in an emergency to protect the firm |
| (f) | Partner indemnifies the firm for loss caused by his wilful neglect |
Because section 13 opens with "subject to contract between the partners", the partnership deed, or an implied contract by course of dealing under section 11, can replace any of these. This is why a deed matters; see our partnership deed drafting service.
Clause (a): no salary by default
A partner is not entitled to receive remuneration for taking part in the conduct of the business. A partner's reward by default comes from his share of profits. If partners want one of them to draw a salary or commission, the deed must say so.
Example. Qasim and Rekha are partners; Qasim works full time and Rekha invests money. With no clause on salary, Qasim cannot claim a salary under section 13(a). A deed clause giving Qasim Rs 30,000 a month would change the position.
Clause (b): equal sharing of profits and losses
The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm. Equal means equal by number of partners, not in proportion to capital. If three partners put in Rs 5 lakh, Rs 3 lakh and Rs 2 lakh, a silent deed still makes their shares equal.
Two points: the rule covers both profit and loss, and it applies when there is no contrary contract. Most deeds state a ratio, such as 50:30:20.
Clause (c): interest on capital only out of profits
Where a partner is entitled to interest on the capital subscribed by him, such interest is payable only out of profits. Two things follow from the wording:
- The clause does not itself create a right to interest on capital. It speaks of a partner who "is entitled", so the entitlement must come from the contract.
- Where interest is due, it is payable only out of profits, so it cannot be paid by eating into capital or by creating a loss.
The text gives no rate for interest on capital; the rate is for the partners to agree.
Clause (d): six per cent on advances
A partner who makes, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest at the rate of six per cent per annum. The conditions in the text are (1) the payment or advance is for the purposes of the business, and (2) it is beyond the capital he agreed to subscribe. Unlike clause (c), this interest is not stated to be payable only out of profits. The partners can agree a different rate in the deed.
Example. Suresh agreed to bring in Rs 4 lakh as capital. Mid-year, he lends the firm a further Rs 1 lakh for buying stock. Absent a different term, he is entitled to interest on that Rs 1 lakh at six per cent per annum, which for a full year is Rs 6,000.
Clause (e): firm indemnifies the partner
The firm shall indemnify a partner in respect of payments made and liabilities incurred by him:
- in the ordinary and proper conduct of the business; and
- in doing such act, in an emergency, for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
The emergency limb mirrors section 21, which deals with a partner's authority to act in an emergency. Note the standard in the text: what a person of ordinary prudence would do in his own case in similar circumstances.
Clause (f): partner indemnifies the firm for wilful neglect
A partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm. Compare section 10, which covers loss caused by fraud. The word "wilful" matters: ordinary mistakes are not described in this clause.
What a deed usually changes
| Default | Typical deed change |
|---|---|
| No salary | Fixed monthly remuneration to working partners |
| Equal profit and loss | Stated ratio such as 60:40 |
| No set rate of interest on capital | Rate agreed in the deed, paid out of profits |
| Six per cent on advances | Different rate or no interest |
For the tax treatment of salary and interest paid to partners, see our income-tax guides; this article gives no tax rates or section numbers.
Practical points
- A silent deed means equal shares. If you intended an unequal split, write the ratio down.
- Salary needs a clause. Without it, even a full-time working partner has no claim to remuneration under section 13(a).
- Separate capital from loans. Record whether extra money is capital or an advance, because clause (d) refers to payments beyond the agreed capital.
- These are rules between partners. For the position with outsiders, see sections 18 and 19.
Need help fixing these terms in your deed?
Profit ratio, salary, interest and advances are where partners most often disagree. Our team can set out each of these clearly in your partnership deed so that section 13's defaults do not apply by accident.
Key takeaways
- Section 13 applies subject to contract between the partners.
- By default there is no remuneration, and profits and losses are shared equally.
- Interest on capital, where due, is payable only out of profits.
- Extra advances for the business carry six per cent per annum by default.
- The firm indemnifies proper and emergency payments; a partner indemnifies the firm for wilful neglect.
Read next
- Section 12: the conduct of the business
- Sections 14 and 15: property of the firm and its application
- Rights of partners under the Partnership Act
- Partnership deed: key clauses, format and drafting
Disclaimer: Based on the text of the Indian Partnership Act, 1932 as consulted on 1 October 2026. Several States have amended the registration chapter and make their own rules, forms and fees for the Registrar of Firms. This article is general information, not legal advice; check the official text and your State's rules before acting.