Partnership Firm Tax Slab + Calculation
Partnership Firm Tax Slab: Complete Guide for AY 2025-26
In this post, we will discuss everything you need to know about the taxation of partnership firms in India, including tax rates, calculation methods, ITR forms, deductions, and filing requirements.
Let’s look at each section in detail:
What is a partnership firm?
A partnership firm is a business formed by two or more individuals who come together to operate it under a single name.
In simple terms, a partnership is an agreement between two or more individuals who decide to share the profits or losses of a business they jointly operate. The individuals in the partnership are referred to as partners, and collectively, they are known as a partnership or a firm.
Partners must be aware of the tax rate applicable to the firm and how it affects their share of the profit. They should also work honestly, keep proper records, and ensure transparency for the benefit of all partners.
Types of partnership firms?
There are mainly two types of partnership firms:
- Registered Partnership Firm: This type of firm is officially registered with the Registrar of Firms (RoC) and gets a registration certificate as proof of its legal status.
- Unregistered Partnership Firm: If a partnership is not registered with the Registrar of Firms and does not have a registration certificate, it is called an unregistered partnership.
Partnership firm tax rate (AY 25-26)
Unlike individual taxpayers, partnership firms have a simple tax structure. The income tax is calculated on the total taxable income of the firm, without the usual exemptions or deductions available to individuals.
1.Tax rates for partnership firms:
For the financial year 2024-25, the tax rate is as follows:
- If the total income is up to Rs. 1 crore, tax is charged at 30% on the total income.
- If the income is above Rs. 1 crore, a surcharge of 12% is applied on the amount exceeding Rs. 1 crore. The basic tax rate stays at 30%.
2.Surcharge, health, and education cess:
A surcharge of 12% is added on income above Rs. 1 crore. Along with that, a health and education cess of 4% is charged on the total tax payable. Hence, partnership firms should keep proper records of all income and expenses to calculate their taxable income correctly.
ITR Forms applicable for partnership firms
When filing income tax returns, partnership firms and LLPs have to submit certain forms and documents. The form to be used depends on the type of income, nature of business, and the rules under the Income Tax Act, 1961. Here is a look at the main forms, their purpose, and who should file them.
- ITR-4 (Sugam) – For Presumptive Income Scheme (Firms other than LLPs)
This form is for small partnership firms (not LLPs) whose total income is up to Rs. 50 lakh. It is used when income is declared on a presumptive basis under sections 44AD, 44ADA or 44AE. The form can also include income from one house property, income from other sources like dividend or pension, and agricultural income up to Rs. 5,000. It cannot be used if the firm’s total income is above Rs. 50 lakh or if it meets conditions like owning property outside India or having a company directorship.
- ITR-5 – For Firms, LLPs and Other Entities
ITR-5 is meant for partnership firms, LLPs, associations of persons, bodies of individuals, cooperative societies, and estates of deceased persons. In short, most partnership firms and LLPs that do not fall under any other ITR category should file ITR-5. However, entities that are required to file under sections 139(4A), 139(4B) or 139(4D) cannot use this form.
Key inclusion for Tax
Let’s discuss what can be claimed and what cannot when calculating tax on a partnership firm’s income.
Allowable
You can claim deductions for:
- Salary or remuneration paid to working partners as mentioned in the partnership deed
- Interest on capital given to partners, up to 12% per year
Other key provisions:
- A partnership firm has to file its Income Tax Return in Form ITR-5 on the Income Tax Department’s website. The firm must also keep proper books of accounts and show its financial details regularly.
- Partners cannot claim personal deductions like those under Section 80C or 80D. But they can lower their taxable income by showing valid business expenses.
Exceptions
A partnership firm cannot claim personal deductions, but it can get some business deductions to reduce tax.
These include:
- Interest on loans taken for business use
- Depreciation on assets like buildings, machinery, and office equipment
- Salaries and benefits given to employees
- Regular business expenses such as rent, office supplies, and other running costs
Exceptions:
- Salary or bonus paid to partners who are not working
- Payments not written in the partnership deed
- Payments made for a time before the partnership deed was signed
Always keep your partnership deed valid and updated to avoid any disallowances.
Income tax slab for a partnership firm
For partnership firms, there are no income tax slabs like those for individuals or HUFs. A flat 30% tax rate is charged on the total income.
Even if the income is small, the firm still has to pay 30% tax.
However, there is one more rule called AMT (Alternate Minimum Tax). It applies when the normal tax amount is less than 18.5% of the adjusted total income. In such cases, the firm has to pay 18.5% as tax.
Example: If the adjusted income is ₹20 lakh and the regular tax is ₹5 lakh (25%), AMT will not apply. But if the regular tax is only ₹3 lakh, then AMT will apply.
Computation
Let’s understand how income tax is calculated for a partnership firm through these simple steps:
First, add up all the receipts like sales, service income and interest earned.
Then, subtract all business expenses such as rent, salaries and utility bills.
Next, adjust for any payments that are not allowed, like extra interest or salary beyond the limit.
After that, apply the tax rate of 30 percent or the Alternate Minimum Tax (AMT), whichever is higher.
Finally, add cess and surcharge if it applies.
For example, if your net profit is ₹20 lakh and you have paid ₹3 lakh as partner salary (which is allowed), then your taxable income will be ₹17 lakh.
Tax will be ₹5.1 lakh plus 4 percent cess.
Filing due date & penalties
The filing date depends on whether your accounts need to be audited under Section 44AB of the Income Tax Act.
- If an audit is not needed, you must file your return by 31st July 2025.
- If an audit is needed, the last date to file is 31st October 2025.
If you miss the due date, the penalty can go up to ₹5,000.
If your total income is more than ₹5 lakh, the penalty will be ₹10,000.
Audit Requirements
An audit is compulsory if:
- Your business turnover is more than ₹1 crore
- Your turnover is above ₹10 crore and over 95% of your transactions are digital
- You show income below 8% of turnover under presumptive taxation
ITR Filing process
Filing taxes for a partnership firm is easy if you follow these steps carefully:
- Get a PAN: Make sure the firm has a valid Permanent Account Number.
- Keep accounts properly: Maintain records of all income, expenses, and balance sheets.
- File ITR-5 online: Go to the Income Tax e-filing portal, choose Form ITR-5, and fill in the details.
- Pay the tax: Work out the total tax and pay it on time.
- Verify the return: Use a Digital Signature Certificate or Aadhaar OTP to verify your filed return.
We have reached the end of this post. If you have any questions regarding this post, leave them in the space below. We’re happy to help!
