Income Tax for Partnership Firm — 30% Flat Rate, Partners' Tax & ITR-5

Updated: 3 June 2026 | Income-tax Act, 2025 | AY 2026-27

A partnership firm (including LLP) is taxed at a flat rate of 30% on its total income — no slab rates, no basic exemption limit. Surcharge of 12% applies if net income exceeds ₹1 crore. Health & Education Cess is 4%. A partner's share of profit from the firm is fully exempt in their hands. Remuneration and interest received from the firm are taxable as business income in partners' hands. ITR form: ITR-5.

30%

Flat tax rate for all partnership firms and LLPs — no exemption limit
Effective rate: 31.2% (income ≤ ₹1Cr) | 34.944% (income > ₹1Cr after 12% surcharge + 4% cess)

Partnership Firm Tax Rate — Computation

Component	Rate / Amount	Applicable When
Base income tax	30% of total income	Always
Surcharge	12% of income tax	When net income > ₹1 crore
Health & Education Cess	4% of (tax + surcharge)	Always
Effective rate (income ≤ ₹1Cr)	31.2%	30% × 1.04
Effective rate (income > ₹1Cr)	34.944%	30% × 1.12 × 1.04

Taxation at Partner Level — What Is Taxable and What Is Exempt

Income Type	Taxable at Firm Level?	Taxable in Partner's Hands?	Basis
Share of profit	Yes — taxed at 30% in firm	No — fully exempt u/s 10(2A)	Avoids double taxation
Partner remuneration	Deductible at firm level (within limits)	Yes — taxed as business income	Section 40(b) limit applies
Interest on capital	Deductible up to 12% p.a.	Yes — taxed as business income	Excess interest disallowed at firm

Partner Remuneration — Allowable Deduction Limits (Section 40b)

The firm can deduct remuneration paid to working partners only up to the following limits. Excess is disallowed and added back to the firm's taxable income.

Book Profit Slab	Maximum Allowable Remuneration
First ₹3,00,000 of book profit (or in case of loss)	₹1,50,000 or 90% of book profit — whichever is higher
Book profit above ₹3,00,000	60% of the excess book profit
Interest on partner capital	Maximum 12% per annum on capital account balance

Partnership Firm vs Proprietorship vs Private Limited — Tax Comparison

Feature	Proprietorship	Partnership / LLP	Private Limited Co.
Tax rate	Individual slab rates (up to 30%)	Flat 30%	25% (turnover ≤ ₹400Cr) / 22% (new Sec 115BAA)
Basic exemption limit	₹2.5L – ₹5L (age-based)	None	None
Surcharge	10–37% (income above ₹50L–5Cr)	12% above ₹1 crore	7% (₹1–10Cr), 12% (above ₹10Cr)
Dividend / profit distribution tax	Not applicable	No DDT; partners' profit share exempt	Dividend taxable in shareholder's hands
ITR form	ITR-3 (business income)	ITR-5	ITR-6
Audit requirement	Section 44AB if turnover > ₹1Cr/₹50L	Section 44AB if turnover > ₹1Cr/₹50L	Mandatory statutory audit

Advance Tax for Partnership Firms

Partnership firms must pay advance tax in four instalments during the financial year:

Instalment	Due Date	Cumulative % of Tax Liability
1st instalment	15 June	15%
2nd instalment	15 September	45%
3rd instalment	15 December	75%
4th instalment	15 March	100%

Interest under Section 234B and 234C applies if advance tax is not paid on time or is under-paid.

Frequently Asked Questions

What is the tax rate for a partnership firm in India?

A partnership firm (including LLP) is taxed at a flat rate of 30% on its total income — there are no slab rates, no basic exemption limit, and no benefit of progressive taxation. On top of the 30% base rate: a surcharge of 12% applies if net income exceeds ₹1 crore. Health and Education Cess of 4% is added on the tax plus surcharge. Effective tax rate for firms earning above ₹1 crore works out to approximately 34.944%.

Are partners taxed on their share of profit from the firm?

No. A partner's share of profit (not remuneration or interest) from a partnership firm is fully exempt from tax in the partner's hands under Section 10(2A) of the Income Tax Act. Since the firm itself has already paid tax at 30% on the profit, taxing the same income again in partners' hands would amount to double taxation. However, remuneration received from the firm and interest on capital are taxable as business income in the partner's hands, as these are deducted at the firm level.

What is the limit for deducting partner remuneration at the firm level?

Under Section 40(b), the maximum remuneration deductible by a firm is: (a) For the first ₹3,00,000 of book profit (or if there is a loss): ₹1,50,000 or 90% of book profit, whichever is higher. (b) For book profit above ₹3,00,000: 60% of the excess book profit. Remuneration beyond these limits is disallowed as a deduction at the firm level and added back to the firm's taxable income. Additionally, interest paid to partners is deductible only up to 12% per annum on their capital balances.

What ITR form does a partnership firm use?

Partnership firms (registered or unregistered) and LLPs file ITR-5. This form is for entities other than individuals, HUFs, and companies — specifically designed for partnership firms, LLPs, AOPs (Association of Persons), BOIs, and similar entities. ITR-5 must be filed online with a digital signature (DSC) if the firm's accounts are subject to audit under Section 44AB. Advance tax rules also apply — firms must pay advance tax in four instalments (15% by June 15, 45% by Sept 15, 75% by Dec 15, 100% by March 15).

Is LLP taxed differently from a partnership firm?

No. For income tax purposes, an LLP (Limited Liability Partnership) is treated exactly like a partnership firm — taxed at a flat 30% with the same surcharge and cess rules. The same partner remuneration limits under Section 40(b) and 12% interest limit apply. LLP partners also enjoy the same exemption on profit share under Section 10(2A). The key difference is in liability protection (partners in LLP have limited liability) and compliance structure — not in tax treatment.

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