Income Tax for a Partnership Firm — Flat 30%, No Exemption

No. Unlike an individual, a firm has no basic exemption limit and no slab benefit. Every rupee of taxable income is taxed at the flat 30% rate. The new-regime Nil-up-to-₹12-lakh Section 87A rebate applies only to resident individuals, not to firms.

No. The old and new regimes, with their slabs and the ₹12 lakh rebate, apply to individuals and HUFs. A partnership firm or LLP is a separate person taxed at a flat 30% and does not choose a regime — there is nothing to opt into.

Yes. A 12% surcharge on the income tax applies when the firm's total income exceeds ₹1 crore in a year, subject to marginal relief so the extra tax cannot exceed the income above ₹1 crore. Below ₹1 crore there is no surcharge — only the 4% cess.

Alternate Minimum Tax applies at 18.5% (plus surcharge and cess) of the firm's adjusted total income when the normal tax works out lower than this — typically where the firm claims certain deductions. AMT credit can be carried forward and set off in later years.

No. A partner's share of profit (not remuneration or interest) is fully exempt in the partner's hands, because the firm has already paid 30% tax on that profit. Taxing it again would be double taxation. Only remuneration and interest received from the firm are taxable to the partner as business income.

Yes. Remuneration, salary, bonus and commission received by a working partner are taxable in the partner's hands as business/profession income (PGBP), because the firm deducts them before arriving at its taxable profit. Only the amount the firm was allowed to deduct under Section 40(b) is taxed to the partner.

From 1 April 2025, Section 194T requires a firm to deduct 10% TDS on remuneration, salary, bonus, commission or interest paid or credited to a partner once the yearly aggregate to that partner exceeds ₹20,000. This is new for AY 2026-27, applies to firms of every size, and means the firm must hold a TAN and file TDS returns.

Under the revised Section 40(b) (effective AY 2025-26): on the first ₹6,00,000 of book profit (or in case of a loss), the deduction is the higher of ₹3,00,000 or 90% of book profit; on book profit above ₹6,00,000 it is 60% of the excess. Remuneration above these limits is disallowed and added back to the firm's income. It is deductible only if paid to a working partner and authorised by the partnership deed.

A firm can deduct interest on a partner's capital only up to 12% per annum on the capital account balance, and only if the deed authorises it. Interest above 12% is disallowed at the firm level. The interest received is taxable in the partner's hands as business income.

No. Section 40(b) allows deduction of remuneration only to working (active) partners, and only if it is authorised by and quantified in the partnership deed. Remuneration paid to a sleeping or non-working partner is fully disallowed to the firm.

Partnership firms (registered or unregistered) and LLPs file ITR-5, the return for entities other than individuals, HUFs and companies. It must be filed online, and audited firms file with a digital signature (DSC). AOPs and BOIs also use ITR-5.

Yes. If the firm's tax liability for the year is ₹10,000 or more, it must pay advance tax in four instalments — 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. Shortfall or delay attracts interest under Sections 234B and 234C.

A firm needs a tax audit when its turnover crosses the prescribed limit for the year (with a higher limit where cash receipts and payments are within 5%), or when it declares profits below the presumptive rate under Sections 44AD/44ADA and its income exceeds the exemption limit. Audited firms must e-file ITR-5 with a digital signature.

No. For income tax an LLP is treated exactly like a partnership firm — flat 30%, the same surcharge and cess, the same Section 40(b) remuneration and 12% interest limits, and the same profit-share exemption for partners. The differences are in liability (limited for LLP) and in MCA compliance (LLPs also file Forms 8 and 11), not in tax rate.

It depends on profit and how partners take money out. A firm pays a flat 30% but partners' profit share is exempt (no dividend tax). A company can pay 22% under Section 115BAA, but dividends are then taxable to shareholders. For moderate profits where partners draw remuneration, a firm is often simpler; for retained-profit, high-turnover businesses a company can be more efficient. Model both before deciding.