Partnership Firm Tax Rate in India (AY 2025-26): A Comprehensive Guide by Tax Experts

Taxation of partnership firms in India follows a distinct structure compared to individual or corporate taxpayers. Whether you operate a traditional partnership under the Indian Partnership Act, 1932 or a Limited Liability Partnership (LLP) under the LLP Act, 2008, knowing the applicable partnership firm tax rate is crucial for accurate financial planning, timely return filing, and legal compliance.

In this article, we cover the latest tax rates, applicable surcharges, deductions, and tax compliance requirements for partnership firms for the Financial Year 2024–25 (Assessment Year 2025–26).

Is a Partnership Firm a Separate Taxable Entity?

Yes. Under the Income Tax Act, 1961, a partnership firm is treated as a separate legal entity for taxation purposes, regardless of whether it is registered or unregistered. The firm is liable to file an income tax return (ITR-5) and pay tax on its total income, after claiming permissible expenses and deductions.

Partnership Firm Tax Rate for FY 2024–25, AY 2025-26

Particulars Rate
Flat Income Tax Rate 30%
Surcharge 12% (if total income > ₹1 crore)
Health and Education Cess 4% on tax + surcharge
Effective Tax Rate (if income ≤ ₹1 crore) 30% + 4% = 31.2%
Effective Tax Rate (if income > ₹1 crore) 30% + 12% + 4% = 34.944%

Note: These rates apply to both registered and unregistered partnership firms.

Allowable Deductions for Partnership Firms

A partnership firm can claim the following deductions from its business income:

1. Partner Remuneration [Section 40(b)]

Remuneration paid to working partners is allowed as a deduction, subject to specific conditions:

Book Profit Maximum Allowable Remuneration
Up to ₹3,00,000 ₹1,50,000 or 90% of book profit (whichever is higher)
Above ₹3,00,000 60% of the balance book profit

Conditions:

  • Payment must be authorized by a written partnership deed

  • The partner must be a working partner

2. Interest on Capital [Section 40(b)]

Interest paid to partners is deductible up to a maximum of 12% per annum, provided it is authorized by the deed.

3. Business Expenses

All expenses incurred wholly and exclusively for business purposes are deductible, including:

  • Rent

  • Salaries

  • Depreciation

  • Administrative costs

  • Audit fees

Alternate Minimum Tax (AMT) for Partnership Firms

If a partnership firm claims deductions under Chapter VI-A (like 80G, 80IA, etc.), and its regular tax liability falls below 18.5% of its adjusted total income, it is liable to pay Alternate Minimum Tax (AMT).

Particular Rate
AMT on Adjusted Total Income 18.5% + applicable surcharge + 4% cess

Firms subject to AMT must file Form 29C certified by a Chartered Accountant.

Tax Treatment in the Hands of Partners

The share of profit received by a partner from the firm is exempt from tax under Section 10(2A). However:

  • Remuneration and interest on capital are taxable in the hands of the partners under the head “Profits and Gains of Business or Profession.”

  • TDS is not applicable on profit share but may apply on remuneration if structured as salary or fee.

Income Tax Return (ITR) Filing for Partnership Firms

Type of Return Form
Income Tax Return ITR-5
Audit Report (if turnover > ₹1 crore) Form 3CA/3CB + 3CD
AMT Certificate Form 29C

Due Dates for AY 2025–26:

Firm Type Due Date
Non-Audited Firm 31st July 2025
Audited Firm 31st October 2025
Firms requiring TP audit (Form 3CEB) 30th November 2025

Penalties for Non-Compliance

Default Penalty
Non-filing of return ₹1,000 to ₹5,000 u/s 234F
Failure to get accounts audited ₹1.5 lakh or 0.5% of turnover (whichever is less) u/s 271B
Failure to pay AMT Interest and penalties as per Sec 115JC & 234B/C

Conclusion

Understanding the partnership firm tax rate and related compliance is crucial for every business to stay on the right side of the law. With a flat tax rate of 30%, and deductions allowed for interest and remuneration to partners, proper planning can result in effective tax management.

However, the increasing scope of audits, AMT provisions, and partner-specific tax implications make it advisable to consult a Professional to manage partnership firm compliance effectively.

Need expert assistance in calculating tax for your partnership firm or filing ITR-5 with audit? Contact our tax professionals for a free consultation click the link below.