Partnership Firm Tax Rate in India—All You Need to Know

Thinking of starting a business venture with your partner? 

If you are going for partnership firm registration, then you must understand the partnership firm tax rate. This isn’t just about ticking a legal box—it’s about knowing how your profits will be taxed, how to claim deductions legally, and how to stay compliant with the Income Tax Act, 1961. A clear grasp of the tax framework ensures your business avoids penalties, maximizes deductions, and runs smoothly from day one.

Let’s break it down in a simple way. 

What is a Partnership Firm?

A partnership firm is a business run by two or more people. They share profits and responsibilities as agreed in a partnership deed.

Types of Partnership Firms

Registered Partnership Firm: You register this with the Registrar of Firms under the Indian Partnership Act, 1932.

Unregistered Partnership Firm: You do not register this. It can still operate, but it has limited legal benefits.

Both types of firms must pay tax hence, the partnership firm tax rate applies to both.

Partnership Firm Tax Rate: As Per IT Act

The Income Tax Act, 1961, governs taxation for partnership firms in India. Here is the current tax structure for partnership firms:

Flat tax rate: 30% on total income

Surcharge: 12% if income exceeds ₹1 crore

Health & Education Cess: 4% on the tax + surcharge

Alternate Minimum Tax (AMT): 18.5% of adjusted total income as per section 115JC

The partnership firm tax rate remains the same for registered and unregistered firms.

Example: If your firm earns ₹50 lakh, tax will be 30% of ₹50 lakh, which is ₹15 lakh. Add cess and surcharge (if applicable).

Key Inclusions for Tax on Partnership Firm

Let’s talk about what’s allowed and what’s not when calculating tax on partnership firm income.

Allowable Deductions (Section 40(b))

You can deduct these:

Remuneration to working partners as per the partnership deed

Interest on capital up to 12% per annum

Exceptions to these deductions:

Salary or bonus to non-working partners

Payments not mentioned in the deed

Payments related to a period before the deed date

Always maintain a valid and updated partnership deed to avoid disallowances.

Income Tax Slab for Partnership Firm

Unlike individuals or HUFs, there’s no income tax slab for partnership firm. Instead, a flat rate applies.

Even if your income is low, you’ll still pay 30% tax.

But here’s the twist—AMT (Alternate Minimum Tax) kicks in when your normal tax is less than 18.5% of adjusted total income. In that case, you must pay 18.5% instead.

Example: If adjusted income is ₹20 lakh and your regular tax is ₹5 lakh (25%), AMT doesn’t apply. But if the regular tax is only ₹3 lakh, then AMT applies.

Computation of Partnership Firm Income Tax

Wondering how the computation of partnership firm income tax is done? 

Here’s a simple step-by-step:

Add all receipts—sales, services, interest income
Deduct business expenses—rent, salary, utility bills
Adjust disallowed payments—like excess interest or ineligible salary
Apply tax rate—30% or AMT, whichever is higher
Add cess and surcharge (if applicable)

Let’s say your net profit is ₹20 lakh. 
You paid ₹3 lakh as partner salary (allowed).
Taxable income is ₹17 lakh. 
Tax = ₹5.1 lakh + 4% cess.

Income Tax Return Form for Partnership Firm

You need to file an income tax return form for partnership firm using Form ITR-5.

This form is for:
Registered or unregistered partnership firms
Firms that are not claiming exemption under Section 11 (charitable trusts)

Key Points About ITR-5

File it via Income Tax Filing Online

Use either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC)

Do not submit physical documents unless the IT department requests.

Don’t confuse ITR-5 with ITR-3

Let us understand the difference and the purpose they both serve:

ITR-5	ITR-3
ITR-5 is used to file the return for a partnership firm. This form covers the firm’s total income, taxes, and deductions. It is applicable to registered as well as unregistered firms.All profits earned by the firm go into this return.	Each partner declares their portion of the profit or loss by filing an ITR-3. Even if partners don’t get a salary, they still need to file returns. Section 10(2A) exempts the firm’s profits, but there is still a need to record them.

Filing Due Dates and Audit Requirements

Filing deadlines depend on audit requirements under Section 44AB of the Income Tax Act.

No audit required: File by 31st July 2025
Audit required: File by 31st October 2025

These dates may extend. In past years, the government announced extensions due to technical or administrative reasons.

When is an audit mandatory?

An audit is mandatory if:
Turnover exceeds ₹1 crore (normal business)
Turnover exceeds ₹10 crore (if 95%+ transactions are digital)
Income declared is less than 8% of turnover under presumptive taxation

Late Filing Penalties

Up to ₹5,000 if the delay is beyond the due date
₹10,000 if income exceeds ₹5 lakh
Loss of interest deductions and carry-forward benefits

Conclusion

Understanding the partnership firm tax rate helps you stay compliant and avoid penalties. The partnership firm tax rate is simple yet crucial—30% flat, with added cess and surcharge where applicable. There’s no income tax slab for partnership firm, so the rate stays fixed regardless of your earnings.

By understanding these basics, you can plan your taxes better and avoid last-minute errors. Filing the right form at the right time not only protects your firm from penalties but also strengthens your financial credibility with banks, investors, and regulatory bodies.

Make sure you use Form ITR-5 for the firm’s return, not ITR-3. Stick to the deadlines—if an audit is not required file on or before 31st July; if there is a need for an audit, then 31st October is your due date. And always follow Section 40(b) when claiming deductions on partner salary or interest.

While taxation may seem technical, filing correctly boosts your firm’s credibility and ensures smooth operations. Get professional assistance, stay current, and file wisely to avoid leaving compliance to chance.

Frequently Asked Questions (FAQs)

1. What is the partnership firm tax rate in India?

The partnership firm tax rate in India is a flat 30% on taxable income, regardless of earnings. In addition, firms must pay a 4% health and education cess, and a 12% surcharge if income exceeds ₹1 crore.

2. Why is there no income tax slab for partnership firm?

Unlike individuals, firms are taxed at a fixed rate. So, there’s no income tax slab for partnership firm. This simplifies calculations but means firms pay 30% tax even on lower incomes.

3. How is the tax on partnership firm calculated?

The tax on partnership firm is calculated by subtracting allowable expenses (like partner salary or interest) from total income. Then apply the 30% tax rate. If AMT applies, use 18.5% on adjusted income instead.

4. When do I need to file the income tax return form for partnership firm?

You must file the income tax return form for partnership firm by 31st July (no audit) or 31st October (audit required). These dates may be extended by the government, so check for updates.

5. What form should a partnership firm use to file its ITR?

Use Form ITR-5 to file the return for your partnership firm. This is different from ITR-3, which is meant for individual partners declaring their share of income.

6. How does the computation of partnership firm income tax work?

The computation of partnership firm income tax involves adding income, deducting valid business expenses, adjusting disallowed payments, and applying the flat tax or AMT rate. Then, cess and surcharge are added to get the final tax amount.

7. Who needs to sign the partnership firm’s income tax return?

The authorized partner must sign the ITR using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). This is mandatory for firms required to undergo an audit.