Firm Pays 30% Flat
A partnership firm is a separate assessee with no slab benefit. Tax is 30% of total income + 12% surcharge (if income > ₹1 crore) + 4% health & education cess. No 22% or 15% regime election.
PARTNERSHIP COMPLIANCE
Partnership Firm Compliance Registration
Books of account, ITR-5 filing, Section 44AB tax audit and the new Section 194T partner TDS — handled on one calendar from a ₹1,999 professional fee. No registrar filing, no MCA fee, no annual return.
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DedicatedExpert Assistance
30%Flat Firm Tax Rate
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SAMPLE
Partnership Registration Certificate
Registrar of Firms (ROF) — sample registration certificate
Illustrative sample. Your official certificate is issued after approval.
01
No Registrar Filing
Zero annual return, no ROC form, no MCA fee — only tax-side obligations
02
ITR-5 Due Date
31 July (non-audit) / 31 October (audit cases) — preserves loss carry-forward
03
Section 194T TDS
10% TDS on partner payments above ₹20,000 aggregate (from 1 Apr 2025)
04
Flat 30% Tax
Firm taxed at 30% + surcharge + cess. Partner’s share of profit exempt under 10(2A)
OVERVIEW
What is Partnership Firm Annual Compliance?
Annual compliance for a partnership firm is entirely tax-side. There is no annual return to any registrar. The firm maintains books under Section 44AA, gets a Section 44AB audit if turnover crosses thresholds, files ITR-5 by the due date, deducts Section 194T TDS at 10% on partner payments above ₹20,000, and files GST returns if registered. The firm is taxed at a flat 30%.
Unlike an LLP or a company, a partnership firm has no annual return, no ROC form and no registrar filing fee. Every recurring obligation sits under the tax statutes. The one major change that reshaped this area is Section 194T (effective 1 April 2025), requiring TDS on payments to partners — an obligation most firms still miss in the first year.
Governing Law
Indian Partnership Act, 1932 + Income Tax Act
Registrar Filings
None annually
Return Form
ITR-5
Tax Rate
Flat 30% + surcharge + cess
DUE DATES
The Partnership Firm Compliance Calendar
Nothing is filed with a registrar. Everything is tax-side, self-tracked, and enforced through interest, fees and lost carry-forwards.
| Obligation | Due Date | Form | Consequence of Default |
|---|---|---|---|
| Advance tax – 1st instalment (15%) | 15 June | Challan 280 | Interest under Section 234C |
| TDS return – Q4 (previous year) | 31 May | Form 24Q / 26Q | ₹200 per day under Section 234E |
| TDS return – Q1 | 31 July | Form 24Q / 26Q | ₹200 per day under Section 234E |
| ITR-5 (non-audit cases) | 31 July | ITR-5 | ₹5,000 fee + loss of carry-forward |
| Advance tax – 2nd instalment (45%) | 15 September | Challan 280 | Interest under Section 234C |
| Section 44AB tax audit report | 30 September | Form 3CA/3CB + 3CD | 0.5% of turnover, up to ₹1,50,000 |
| TDS return – Q2 | 31 October | Form 24Q / 26Q | ₹200 per day under Section 234E |
| ITR-5 (audit cases) | 31 October | ITR-5 | ₹5,000 fee + loss of carry-forward |
| Advance tax – 3rd instalment (75%) | 15 December | Challan 280 | Interest under Section 234C |
| TDS return – Q3 | 31 January | Form 24Q / 26Q | ₹200 per day under Section 234E |
| Advance tax – final (100%) | 15 March | Challan 280 | Interest under Sections 234B & 234C |
| Monthly TDS deposit (incl. 194T) | 7th of following month | Challan 281 | Interest at 1.5% per month |
The deadline that actually hurts:
Under Section 80, business and capital losses can be carried forward for 8 assessment years only if the return is filed by the Section 139(1) due date. A firm that files a loss year belatedly forfeits that shield permanently.
TAXATION
How a Partnership Firm is Taxed
A flat rate, a ceiling on what partners can draw as a deductible expense, and an exemption that prevents double taxation.
Section 40(b) Cap on Remuneration
Remuneration deductible only for working partners, if authorised by the deed, and within ceiling: higher of ₹3 lakh or 90% of first ₹6 lakh book profit, then 60% of balance. Interest on capital capped at 12% p.a.
Partner’s Share Exempt (10(2A))
The partner’s share of profit is exempt under Section 10(2A) because the firm has already been taxed. Partner pays tax only on remuneration and interest received (reported in ITR-3).
Deed Must Authorise Deductions
Section 40(b) requires remuneration to be authorised by and quantified in the partnership deed. A vague “as mutually agreed” clause fails in assessment. Specify method, rates and effective date.
NEW OBLIGATION
Section 194T – TDS on Partner Payments
Effective 1 April 2025, a firm must deduct tax on what it pays its own partners. Most firms had never operated a TDS workflow on partner drawings before.
| Parameter | Position |
|---|---|
| Effective from | 1 April 2025 |
| Who deducts | Every firm (including LLP) paying its partners |
| Payments covered | Salary, remuneration, commission, bonus and interest paid to a partner |
| Not covered | Share of profit (exempt under Section 10(2A)) |
| Rate | 10% |
| Threshold | Aggregate payments to that partner exceeding ₹20,000 in the financial year |
| Deposit due | 7th of the following month (30 April for March deductions) |
| Reporting | Quarterly Form 26Q; Form 16A issued to the partner |
| Interest on late deposit | 1% per month for late deduction; 1.5% per month for late payment |
Most common error:
Treating partner drawings as capital withdrawals and skipping deduction. Whether a payment is remuneration or a capital withdrawal is determined by the deed and the accounting treatment — not by the bank narration. If credited to the partner’s current account as remuneration or interest, Section 194T applies.
SECTION 44AB
When a Tax Audit Applies
A firm has no statutory audit obligation. What it can have is a tax audit, triggered purely by turnover, receipts and the presumptive regime.
| Situation | Threshold | Audit Required? |
|---|---|---|
| Business – cash receipts/payments above 5% | Turnover above ₹1 crore | ✓ Yes |
| Business – cash within 5% each | Turnover above ₹10 crore | ✓ Yes |
| Profession | Gross receipts above ₹50 lakh | ✓ Yes |
| Presumptive (44AD) – profit below 8%/6% | Income above exemption limit | ✓ Yes |
| Presumptive (44ADA) – profit below 50% | Income above exemption limit | ✓ Yes |
| Business within presumptive limits, profit at/above rate | Turnover up to ₹2 crore (₹3 crore on 5% cash test) | ✗ No |
ANNUAL CYCLE
How the Annual Compliance Cycle Runs
1. Close & Reconcile the Books
Complete books under Section 44AA, reconcile bank, debtors, creditors and stock, and finalise P&L and balance sheet for the year ended 31 March.
2. Reconcile Deed to Accounts
Confirm the deed authorises the remuneration and interest actually credited, and that the profit-sharing ratio matches. An outdated deed is the most common reason a deduction fails.
3. Compute Section 40(b) Amounts
Apply the ceiling of ₹3 lakh or 90% of first ₹6 lakh book profit, then 60% of balance. Cap interest on partner capital at 12% p.a. simple interest.
4. Run Section 194T TDS Workflow
Deduct 10% on partner remuneration and interest once aggregate payments cross ₹20,000 for the year, at credit or payment (whichever is earlier), and deposit by the 7th of the following month.
5. File Quarterly TDS Returns
Form 26Q (and 24Q/27Q as applicable) by 31 July, 31 October, 31 January and 31 May. Issue Form 16A to partners.
6. Pay Advance Tax on Schedule
Where liability ≥ ₹10,000: 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March.
7. Test Section 44AB Applicability
Check turnover, professional receipts and presumptive thresholds. If audit applies, complete Form 3CA/3CB + 3CD by 30 September.
8. File ITR-5 for the Firm
By 31 July (non-audit) or 31 October (audit). Filing by the Section 139(1) due date preserves loss carry-forward under Section 80.
9. Partner Returns & Registrar Intimations
Each partner files ITR-3 reporting remuneration and interest (share of profit exempt under 10(2A)). Intimate Registrar of Firms of any change in constitution.
PENALTIES
What Non-Compliance Costs
No registrar penalty exists for a firm, so every consequence arrives through the tax system. Two of them are permanent rather than payable.
| Default | Provision | Consequence |
|---|---|---|
| Late filing of ITR-5 | Section 234F | ₹5,000 (₹1,000 if income ≤ ₹5 lakh) |
| Belated return in a loss year | Section 80 | Business & capital losses cannot be carried forward — permanently |
| Non-payment / short payment of tax | Sections 234A, 234B, 234C | Interest at 1% per month on the shortfall |
| Failure to obtain tax audit | Section 271B | 0.5% of turnover, up to ₹1,50,000 |
| Failure to deduct TDS (incl. 194T) | Section 201(1A) | Interest 1% p.m. (deduction) / 1.5% p.m. (deposit) |
| Expenditure on which TDS not deducted | Section 40(a)(ia) | 30% of the expenditure disallowed |
| Late filing of TDS return | Section 234E | ₹200 per day until filed |
| Failure to maintain books | Section 271A | ₹25,000 |
STRUCTURE COMPARISON
Partnership Firm vs LLP vs Private Limited – Compliance Load
| Parameter | Partnership Firm | LLP | Private Limited |
|---|---|---|---|
| Annual Registrar Filing | None | Form 11 & Form 8 | AOC-4 & MGT-7 |
| Statutory Audit | Not required | Above ₹40 lakh turnover | Always |
| Tax Audit | Section 44AB thresholds | Section 44AB thresholds | Section 44AB thresholds |
| Income Tax Return | ITR-5 | ITR-5 | ITR-6 |
| Tax Rate | Flat 30% | Flat 30% | 22% / 25% / 30% |
| Section 194T Partner TDS | ✓ Yes | ✓ Yes | ✗ No |
| Liability of Owners | Unlimited | Limited | Limited |
| Typical Annual Compliance Cost | ₹1,999 – ₹18,000 | ₹5,000 – ₹15,000 | ₹12,000 – ₹35,000 |
WHY CHOOSE US
Why Corporate Mart for Partnership Compliance?
We reconcile the deed to the accounts before the computation — not after an assessment notice.
Deed-Checked Computations
Remuneration and interest are deductible only if the deed authorises them. We reconcile the deed to the books before computing Section 40(b) amounts.
Section 194T Handled Properly
Partner remuneration TDS at 10% has applied since 1 April 2025. We run the deduction, deposit and Form 26Q reporting so you don’t miss the new obligation.
Loss Carry-Forward Protected
ITR-5 is filed by the Section 139(1) due date so business and capital losses remain available for 8 assessment years under Section 80.
Full Compliance Calendar
Advance tax instalments, quarterly TDS returns, audit cut-off and ITR-5 due date — mapped with reminders so nothing is left to chance.
Books Review → Deed Reconciliation → 40(b) Computation → 194T TDS → ITR-5 Filing → Partner Coordination
FAQ
Frequently Asked Questions
No. A partnership firm has no annual return, no ROC form and no MCA fee. The Registrar of Firms is notified only when the constitution changes (partners, name or place of business).
31 July of the assessment year for non-audit cases, and 31 October for cases where a Section 44AB tax audit is required. Filing by the Section 139(1) due date is essential to preserve loss carry-forward under Section 80.
Section 194T (effective 1 April 2025) requires a firm to deduct TDS at 10% on salary, remuneration, commission, bonus or interest paid to a partner, once aggregate payments to that partner exceed ₹20,000 in a financial year. Share of profit is not covered.
When business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each within 5%), or professional receipts exceed ₹50 lakh, or presumptive income is declared below the prescribed rate with income above the exemption limit.
It is deductible in the firm’s hands only if the partner is a working partner, the deed authorises it, and the amount stays within the Section 40(b) ceiling. The partner pays tax on the remuneration received (reported in ITR-3). Share of profit remains exempt under Section 10(2A).
Apart from the late-filing fee under Section 234F, business and capital losses cannot be carried forward under Section 80. That loss of carry-forward is permanent and can cost far more than the fee.
Corporate Mart provides transparent, tailored assistance based on your entity structure and state requirements. Contact our expert team for a detailed proposal. Government and statutory fees depend on the entity structure and state requirements. Contact our expert team for a detailed proposal. Registrar fee is always ₹0.
No. Whether a payment is remuneration or a capital withdrawal is determined by the partnership deed and the accounting treatment, not by the bank narration. If it is credited to the partner’s current account as remuneration or interest, Section 194T applies.
