A partnership firm in India must file its income tax return using ITR-5 every year, regardless of profit or loss. The tax rate is a flat 30% on net income, plus applicable surcharge and cess. Filing is mandatory even for firms with nil income. Taxocity offers end-to-end ITR filing for partnership firms with a 100% compliance guarantee and real human experts.

• Flat tax rate of 30% on net income (no slab benefit)
• Due date: 31st July for non-audit firms; 31st October for audit-required firms (AY 2026-27)
• Partners' remuneration and interest are deductible subject to Section 40(b) limits

What is ITR for a Partnership Firm?

Income Tax Return for a partnership firm is the annual declaration filed with the Income Tax Department of India, reporting the firm's total income, deductions, and tax payable. Partnership firms — including general partnerships and those registered under the Indian Partnership Act, 1932 — are taxed as separate entities, distinct from their partners. The applicable ITR form is ITR-5.

The firm's income is computed after deducting allowable expenses including partner remuneration, interest on capital, and business expenses. Partners are then taxed on their share of profit in their individual returns, but the profit distributed to partners is exempt in partners' hands under Section 10(2A), since the firm has already paid tax on it.

Tax Rates for a Partnership Firm (2026-27)

Under the Direct Tax Code 2025, partnership firms continue to be taxed at a flat rate. There are no basic exemption limits or progressive slabs for firms.

Income Level	Tax Rate	Surcharge	Health & Education Cess	Effective Rate
Up to ₹1 crore	30%	Nil	4%	31.2%
₹1 crore to ₹10 crore	30%	12%	4%	34.944%
Above ₹10 crore	30%	12%	4%	34.944%

Alternate Minimum Tax (AMT) is applicable at 18.5% (plus surcharge and cess) if the regular tax liability falls below AMT computed on adjusted total income. This is relevant for firms claiming significant deductions under Chapter VI-A.

ITR-5: The Right Form for Firms

ITR-5 is the designated form for partnership firms, LLPs, Association of Persons (AOPs), Body of Individuals (BOIs), and certain other entities. It cannot be filed by individuals, HUFs, or companies.

Key Schedules in ITR-5

• Schedule BP: Computation of income from business or profession
• Schedule CYLA: Current year loss adjustment
• Schedule SH: Details of partners, their profit-sharing ratios, and capital contribution
• Schedule 80G / 80GGA: Donations and deductions claimed
• Schedule DPM / DOA: Depreciation on plant and machinery / other assets
• Schedule GST: Reconciliation of turnover declared in GST returns

ITR-5 must be filed electronically. Firms whose accounts are required to be audited must also submit a digital signature.

Due Dates for Filing ITR (AY 2026-27)

The due date depends on whether your firm is subject to a tax audit under Section 44AB of the Income Tax Act / Direct Tax Code 2025.

Category	Turnover / Condition	Due Date
Non-audit firms (individuals & others not liable for audit)	Turnover up to ₹1 crore (business) or ₹50 lakh (profession)	31st July 2026
Audit-liable firms	Turnover exceeds ₹1 crore (business) or ₹50 lakh (profession)	31st October 2026
Firms with transfer pricing (international/specified domestic transactions)	Required to furnish report under Section 92E	30th November 2026

Note: Late filing attracts a penalty of ₹5,000 (reduced to ₹1,000 if total income is below ₹5 lakh). Interest under Section 234A is charged at 1% per month on the tax due.

Key Deductions Available to Partnership Firms

Partner Remuneration (Section 40(b))

A registered partnership firm can claim a deduction for remuneration paid to working partners, subject to the following limits on book profit:

• On first ₹3 lakh of book profit (or in case of loss): ₹1,50,000 or 90% of book profit, whichever is higher
• On balance of book profit: 60% of book profit

The partnership deed must specifically authorise the payment of remuneration, and the amount must be within the above limits. Excess remuneration is disallowed.

Interest on Partners' Capital (Section 40(b))

Interest paid to partners on their capital or current account is deductible, but only up to 12% per annum. Any interest paid beyond 12% is disallowed as a deduction in the firm's hands.

Other Business Deductions

• Depreciation on business assets (as per prescribed rates)
• Rent, salaries to non-partner employees, and other operating expenses
• Business losses (carry forward up to 8 assessment years)
• Deductions under Chapter VI-A (e.g., Section 80G for donations)

Is a Tax Audit Mandatory?

A tax audit under Section 44AB is mandatory for a partnership firm if its total sales, turnover, or gross receipts exceed ₹1 crore in a business, or ₹50 lakh in a profession during the financial year.

The audit threshold is enhanced to ₹10 crore for businesses where cash transactions do not exceed 5% of total receipts and payments. This is highly relevant for firms operating digitally or through banking channels.

A Chartered Accountant conducts the audit and submits Form 3CA/3CB along with Form 3CD. This report must be filed before the ITR.

TDS Applicability for Partnership Firms

Partnership firms are required to deduct TDS when making certain payments. Key TDS rates applicable to partnerships (AY 2026-27) are:

Nature of Payment	For Individuals / HUF	For Other than Individuals (Firms, Companies)	Section
Contractor payments	1%	2%	194C
Professional / Technical fees	10%	10%	194J
Rent (land, building)	10%	10%	194I
Commission / Brokerage	5%	5%	194H
Interest (other than banks)	10%	10%	194A

Partnership firms must also file quarterly TDS returns (Form 26Q / 24Q) and issue TDS certificates (Form 16 / 16A) to deductees. Non-compliance leads to disallowance of expenses and penalties.

How to File ITR-5 for a Partnership Firm

1. Obtain PAN for the firm - The firm must have its own PAN, separate from the partners' PANs.
2. Maintain books of accounts - Prepare profit & loss account and balance sheet for FY 2025-26.
3. Get tax audit done (if applicable) - Engage a CA to audit and submit Form 3CA/3CD before filing ITR.
4. Compute total income - Calculate business income after all allowable deductions including partner remuneration and interest under Section 40(b).
5. Calculate tax liability - Apply 30% flat rate plus surcharge and cess. Check AMT applicability.
6. Pay advance tax / self-assessment tax - Ensure all due taxes are paid before filing.
7. Log in to the Income Tax e-filing portal - Use the firm's PAN credentials at incometax.gov.in.
8. Fill and submit ITR-5 - Complete all applicable schedules including partner details and GST reconciliation.
9. Verify the return - E-verify using EVC or digital signature (DSC mandatory if audit is applicable).

Advance Tax for Partnership Firms

Partnership firms must pay advance tax in instalments during the financial year if the estimated tax liability exceeds ₹10,000. The schedule is as follows:

Instalment Due Date	Minimum % of Advance Tax to be Paid
15th June 2025	15%
15th September 2025	45%
15th December 2025	75%
15th March 2026	100%

Shortfall in advance tax results in interest under Section 234B and 234C.

Common Mistakes to Avoid

• Paying partner remuneration not specified in the partnership deed
• Claiming interest on partners' capital in excess of 12% per annum
• Missing the GST turnover reconciliation schedule in ITR-5
• Filing ITR without clearing all outstanding TDS dues
• Not carrying forward business losses due to late filing
• Forgetting to pay AMT when deductions reduce regular tax below AMT threshold

Partnership Firm vs LLP: Tax Comparison

Parameter	Partnership Firm	LLP
Tax Rate	30% flat	30% flat
ITR Form	ITR-5	ITR-5
Partner remuneration deduction	Allowed (Section 40(b))	Allowed (Section 40(b))
Liability of partners	Unlimited	Limited
Audit under Companies Act	Not applicable	Applicable (LLP Act)
Dividend Distribution Tax	Not applicable	Not applicable
Registration	Optional (under Partnership Act)	Mandatory (MCA)

If your firm is growing and you want limited liability with similar tax treatment, consider converting to an LLP. Learn more about LLP Registration with Taxocity.

Why Choose Taxocity for ITR Filing?

Taxocity has been providing compliance and tax services for over 3 decades. With a 4.8/5 rating from 5,000+ reviews and a 100% compliance guarantee, Taxocity supports partnership firms with:

• Complete ITR-5 preparation and filing
• Tax audit coordination with empanelled Chartered Accountants
• Advance tax computation and reminders
• TDS return filing and reconciliation
• GST-ITR turnover reconciliation
• Real human experts accessible throughout the year
• End-to-end support from registration to annual compliance

Key Takeaways

1. Partnership firms file ITR-5 every year — mandatory even with nil income.
2. Tax rate is flat 30% + surcharge + cess; no basic exemption limit.
3. Due date is 31st July 2026 for non-audit firms and 31st October 2026 for audit-liable firms.
4. Partner remuneration and interest on capital are deductible within Section 40(b) limits.
5. Tax audit under Section 44AB is required when turnover exceeds ₹1 crore (₹10 crore for digital firms).
6. TDS obligations apply — quarterly returns and certificates are mandatory.
7. Advance tax must be paid in four instalments if estimated tax liability exceeds ₹10,000.

Frequently Asked Questions

Can a partnership firm file a nil return?

Yes, a partnership firm must file ITR-5 even if it has no income or has incurred a loss. Filing a nil or loss return is important to carry forward business losses and maintain compliance records.

Is the partner's share of profit taxable?

No. A partner's share of profit from a registered partnership firm that has already paid tax is exempt under Section 10(2A). However, salary, bonus, commission, and interest received from the firm are taxable in the partner's individual return.

Which ITR form does a partnership firm use?

Partnership firms file ITR-5. This form covers firms registered under the Indian Partnership Act, 1932, as well as LLPs, AOPs, and BOIs. ITR-1, ITR-2, ITR-3, and ITR-4 are not applicable for firms.

What if the tax audit is not completed on time?

Failure to get the tax audit done by the due date attracts a penalty of 0.5% of turnover or ₹1,50,000, whichever is lower. The ITR filed without attaching the audit report is also considered defective.

Related Compliance Services

• GST Registration for Your Business
• GST Filing Services
• LLP Registration in India
• Private Limited Company Registration
• Sole Proprietorship Registration

Disclaimer

This article is intended for general informational purposes only and does not constitute tax advice, legal advice, or professional consultation. Tax laws and regulations are subject to change; the information here is based on provisions applicable as of the date of publication. Every firm's situation is unique. Please consult a qualified tax advisor or Chartered Accountant before making any financial or compliance decisions.