What ITR form does a Partnership Firm file?

A Partnership Firm files ITR-5 every year. The firm pays income tax at a flat rate of 30 percent on its net profits plus 12 percent surcharge if income exceeds Rs.1 crore plus 4 percent Health and Education Cess. Each partner also files an individual ITR-3 separately to declare their share of profit which is tax-free under Section 10(2A), partner salary which is taxable, and interest on capital which is taxable as business income.

Is the share of profit from a Partnership Firm taxable in the partner's hands?

No. The partner's share of profit from a registered Partnership Firm is completely exempt from income tax in the partner's individual hands under Section 10(2A) of the Income Tax Act. This prevents double taxation since the firm itself has already paid 30 percent tax on those profits. However, partner salary received from the firm and interest on capital paid by the firm above the Section 40(b) limits are taxable as business income in the partner's individual ITR-3.

When is tax audit mandatory for a Partnership Firm?

Tax audit under Section 44AB is mandatory for a Partnership Firm when total business turnover exceeds Rs.1 crore in a year (or Rs.10 crore if 95 percent or more of transactions are digital), or professional gross receipts exceed Rs.50 lakh in a year, or the firm opts out of presumptive taxation under Section 44AD or 44ADA. The audit must be conducted by a Chartered Accountant in Form 3CB (audit report) and Form 3CD (detailed statement of particulars). The audit report is due by 30 September every year. Without audit, ITR-5 is due 31 July. With audit, ITR-5 is due 31 October.

What is Section 40(b) and what are the limits on partner salary?

Section 40(b) of the Income Tax Act governs the deductibility of partner salary and interest on capital from firm income. Interest on capital is deductible at a maximum of 12 percent per annum. Partner salary is deductible up to these limits based on book profit: on the first Rs.3 lakh of book profit, 90 percent or Rs.1,50,000 whichever is higher; on the remaining book profit above Rs.3 lakh, 60 percent. Any salary or interest exceeding these limits is added back as firm income and taxed at 30 percent. TAXAJ optimises the salary and interest structure in the Partnership Deed to maximise deductions within Section 40(b) limits.

Does a Partnership Firm file any ROC or MCA forms?

No. Partnership Firms are governed by the Indian Partnership Act 1932 and not the Companies Act 2013. They have no ROC or MCA filing requirements. There is no AOC-4, no MGT-7A and no annual return with the Ministry of Corporate Affairs. The firm may optionally be registered with the Registrar of Firms under the Partnership Act but this is not the same as company registration. Compliance is limited to Income Tax ITR-5, GST if applicable and TDS. This makes partnership compliance significantly simpler than LLP or Pvt Ltd.

Is conversion of a Partnership Firm to LLP tax-neutral?

Yes. Conversion of a Partnership Firm to LLP is tax-neutral under Section 47(xiiib) of the Income Tax Act — there is no capital gains tax on the transfer of assets and liabilities at the time of conversion provided conditions are met. The LLP inherits the firm's assets at existing book values. The key benefit of LLP over Partnership is limited liability protection for partners and separate legal entity status. Downside is that LLP has mandatory MCA filings Form 8 and Form 11 which a partnership does not require. TAXAJ handles the complete conversion with advance tax planning.

What must be done when a partner is added or retires from the firm?

A supplementary Partnership Deed must be executed by all partners when a new partner is admitted or an existing partner retires. The deed records the effective date, revised profit-sharing ratio and settlement terms. After deed execution the GST registration must be amended to reflect the changed constitution of the firm, tax registrations must be updated, bank account signatories must be updated, and if the firm is registered with the Registrar of Firms an amendment must be filed. Income for the year is split between the pre-change and post-change periods in the annual ITR-5.

What are all the annual compliance requirements for a Partnership Firm?

Annual compliances for a Partnership Firm: ITR-5 firm income tax return by 31 July if no audit or by 31 October if audit applies. Tax audit Form 3CB and 3CD by 30 September if turnover exceeds threshold. Each partner files ITR-3 by the same deadline as the firm. Advance tax in four quarterly instalments. If GST registered: monthly GSTR-1 by 11th, GSTR-3B by 20th, and annual GSTR-9 by 31 December. TDS on vendor payments: deposit by 7th monthly, quarterly returns 26Q and 24Q. If 20 or more employees: monthly EPF and ESI by 15th. No ROC or MCA filings are required for Partnership Firms.

Indian Partnership Act 1932 · Registered & Unregistered · Pan-India

One Stop Solution for Your
Partnership Firm

Income Tax, GST, TDS, deed management and all regulatory compliance for your Partnership Firm — handled by dedicated Chartered Accountants. Partners' ITR. Audit threshold. Zero penalties.

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🔒 Zero Late Penalties

📍 Pan-India Service

⚠️ Key Annual Deadlines ITR-5 (No Audit): 31 July every year · ITR-5 (With Audit): 31 October every year · Partners' ITR-3: 31 July / 31 Oct

📖 Understanding Partnership

Partnership Firm — Key Facts You Must Know

A Partnership Firm is governed by the Indian Partnership Act 1932 — not Companies Act. It is NOT a separate legal entity. Partners are personally liable for the firm's debts. No ROC. No MCA filings. Different tax rules from companies.

Feature🤝 Partnership🏢 LLP🏛 Pvt Ltd

Separate legal entityNoYesYes

Personal liability of partnersUnlimitedLimitedLimited

RegistrationOptionalMandatoryMandatory

Governed byPartnership ActLLP Act 2008Companies Act

Firm ITR formITR-5ITR-5ITR-6

Partners' ITR formITR-3ITR-3N/A (directors)

ROC / MCA filingsNoneForm 8 + 11AOC-4 + MGT-7A

📋 When is Tax Audit Mandatory?

Business: Turnover exceeds ₹1 crore per year (₹10 crore if 95%+ transactions are digital)

Profession: Gross receipts exceed ₹50 lakh per year

Sec 44AD (Presumptive): If firm opts out of presumptive taxation

If audit applies → ITR-5 due 31 October
If no audit → ITR-5 due 31 July

💡 Tax Advantages of Partnership

Tax rate: 30% on net profits — flat rate regardless of income slab

Partner salary: Deductible as business expense — reduces firm's taxable income

Partner interest: Interest on capital up to 12% is deductible (Sec 40(b))

Share of profit: Partners' share of firm profit is completely tax-free in partners' hands (Sec 10(2A))

⏰ Compliance Calendar

Partnership Firm — Key Due Dates Every Year

Partnership Firms have NO ROC or MCA filings — compliance is primarily Income Tax, GST and TDS. Partners must also file their individual ITR-3 separately.

💰 Firm Income Tax👤 Partners' ITR🧾 GST💳 TDS / Payroll

📋

ITR-5 (No Audit)

31 July every year

ITR-5

₹1,000–5,000 late fee

📋

ITR-5 (With Tax Audit)

31 October every year

ITR-5 + Form 3CA/3CD

₹1,000–5,000 late fee

💸

Advance Tax Q2

15 September every year

Challan 280

1%/month interest

💸

Advance Tax Q3

15 December every year

Challan 280

1%/month interest

📌 Partnership Firm files ITR-5 — same as LLP. Firm-level income tax rate: 30% flat on net profits + 12% surcharge if income exceeds ₹1 crore + 4% H&E cess. No Sec 115BAA option — the 22% corporate tax rate is not available to partnership firms (only companies). Partner salary and interest on capital up to 12% (Sec 40(b)) are deductible from firm income before tax.

👤

Partner's ITR (No Audit)

31 July every year

ITR-3

₹1,000–5,000 late fee

👤

Partner's ITR (With Audit)

31 October every year

ITR-3 (if firm is audited)

₹1,000–5,000 late fee

✅

Share of Profit

—

Tax-free Sec 10(2A)

—

💼

Partner Salary & Interest

—

Taxable in partner's ITR-3

—

📌 Partners file ITR-3 individually every year — not ITR-4 (which is for proprietors using presumptive taxation). Each partner's ITR-3 includes: (1) Share of firm profit — completely tax-free under Sec 10(2A), (2) Partner salary received from firm — taxable as "Business Income", (3) Interest on capital received from firm — taxable as "Business Income". If the firm is subject to tax audit, the partner's ITR-3 due date also extends to 31 October.

🧾

GSTR-1 Monthly

11th every month

Outward Supplies

₹50–200/day

💰

GSTR-3B Monthly

20th every month

Tax Payment

₹50–200/day

📊

GSTR-9 Annual

31 December every year

Annual Return

₹200/day

📝

GSTR-4 (Composition)

30 April every year

If composition scheme

₹50–200/day

📌 GST registration is mandatory for Partnership Firms if turnover exceeds ₹20 lakh (₹10 lakh for special category states) or if making interstate supplies. Small firms with turnover up to ₹1.5 crore (₹75 lakh for some states) may opt for the Composition Scheme — pay 1% GST, file GSTR-4 annually instead of monthly GSTR-1/3B.

💳

TDS Deposit

7th every month

Challan 281

1.5%/month interest

📝

TDS Returns

Quarterly

24Q (salary) / 26Q

₹200/day penalty

👥

EPF / ESI

15th every month

If 20+ employees

Damages @ 5–25%

💼

No TDS on Partner Salary

—

194A / 194H do not apply

—

📌 TDS must be deducted on payments to third parties — contractor payments (194C), rent (194I), professional fees (194J). No TDS on salary or interest paid to partners — these are not treated as payments to employees; they are withdrawals from firm income and reported in partners' individual ITR-3.

📋 All Partnership Services

Everything Your Partnership Firm Needs

From ITR-5 to partners' ITR-3 to GST and deed changes — click any service for its dedicated page with process and pricing.

⭐ Most Popular Bundle

🕉️

Nirvana Compliance Package

All-In-One Annual Partnership Compliance

Complete peace-of-mind for your Partnership Firm — ITR-5 for the firm, ITR-3 for all partners, GST returns, TDS returns and partner salary/interest optimisation under one dedicated CA. Zero penalties. One fixed price.

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✅ Everything Included

✅ ITR-5 — Partnership Firm Return

✅ ITR-3 — All Partners' Individual ITR

✅ Tax Audit (if applicable)

✅ GST Returns — Monthly & Annual

✅ TDS Returns — 24Q, 26Q Quarterly

✅ Partner Salary Sec 40(b) Optimisation

✅ Advance Tax Planning — Firm & Partners

✅ Dedicated CA on WhatsApp

💰 Tax Compliances — Annual

Annual

📋

ITR-5 — Firm Tax Return

ITR-5 (Firm)

Partnership Firm files ITR-5 every year. Tax at 30% on net profits. Partner salary deductible under Sec 40(b). Due 31 July (no audit) or 31 October (with audit). TAXAJ prepares and files on time.

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Partners

👤

ITR-3 — Partners' Individual Return

ITR-3 (Each Partner)

Each partner files ITR-3 individually. Share of firm profit is tax-free (Sec 10(2A)). Partner salary and interest are taxable as business income. TAXAJ files ITR-3 for all partners together with the firm's ITR-5.

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If Applicable

📊

Tax Audit — Form 3CB/3CD

Form 3CB + 3CD

Mandatory when turnover exceeds ₹1 crore (business) or ₹50 lakh (profession). Audit in Form 3CB (by CA) and Form 3CD (detailed statement). Due 30 September. Penalty: 0.5% of turnover if not done.

Monthly GSTR-1 and GSTR-3B. Annual GSTR-9. GST mandatory if turnover exceeds ₹20 lakh. Composition scheme available up to ₹1.5 crore — GSTR-4 annually instead of monthly.

TDS on contractor payments (194C), rent (194I), professional fees (194J). Monthly deposit by 7th. Quarterly returns 26Q / 24Q. Note: No TDS on partner salary or interest paid to partners.

Monthly payroll for employees, EPF ECR challan, ESI, professional tax and TDS on salary. EPF mandatory for 20+ employees. ESI for employees earning below ₹21,000/month. Form 16 year-end.

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📄 Deed & Partner Changes

One-Time

📜

Partnership Deed Drafting

Partnership Deed

Comprehensive Partnership Deed covering profit-sharing ratio, partner salary (with Sec 40(b) limits), interest on capital, capital contribution, admission/retirement of partners and dissolution terms.

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Change

➕

Add / Retire a Partner

Supplementary Deed

Supplementary Partnership Deed for admission of new partner or retirement of existing partner. Updated deed must be executed and GST/IT registrations amended to reflect the changed constitution.

View Details →

Change

📊

Change Profit-Sharing Ratio

Supplementary Deed

Supplementary deed to change profit-sharing ratio, partner salary structure or interest on capital. Effective from execution date. Income Tax implications of change assessed by TAXAJ CA.

View Details →

Convert

🔄

Convert Partnership → LLP

FiLLiP + Form 17

Convert Partnership Firm to LLP for limited liability protection, lower compliance cost vs Pvt Ltd and no unlimited personal liability. Tax-neutral conversion under Sec 47(xiiib). All assets and liabilities transfer.

View Details →

Convert

🏢

Convert Partnership → Pvt Ltd

Slump Sale / New Incorp

Convert to Private Limited Company for limited liability, separate legal entity status and ability to raise equity investment. Typically done via slump sale or fresh incorporation with business transfer.

View Details →

Dissolve

🔒

Dissolve Partnership Firm

Dissolution Deed

Dissolution Deed executed by all partners. Final ITR-5 filed. All GST, TAN, bank accounts and registrations closed. TAXAJ manages complete winding-down process including tax clearance.

View Details →

✅ Full Compliance Checklist

Everything Your Partnership Firm Must Do Every Year

TAXAJ tracks all firm-level and partner-level obligations — nothing missed.

💰 Firm Income Tax

ITR-5: Firm Income Tax Return 31 Jul / 31 Oct

Tax Audit Form 3CB/3CD (if T/O > threshold) 30 Sep

Advance Tax: Q1 15% by 15 June 15 Jun

Advance Tax: Q2 45% by 15 Sep 15 Sep

Advance Tax: Q3 75% by 15 Dec 15 Dec

Advance Tax: Q4 100% by 15 Mar 15 Mar

Partner salary Sec 40(b) within limits Per deed

Interest on capital max 12% Sec 40(b) Per deed

👤 Partners' Individual Tax

ITR-3: Each partner's individual return 31 Jul / 31 Oct

Share of firm profit — tax-free Sec 10(2A) In ITR-3

Partner salary — taxable as business income In ITR-3

Interest on capital — taxable as business income In ITR-3

Partners' advance tax (if income > ₹1L after TDS) Quarterly

Partners' other income declared in ITR-3 Annual

🧾 GST & TDS

GSTR-1: Monthly outward supplies 11th monthly

GSTR-3B: Monthly GST payment 20th monthly

GSTR-9: Annual GST return 31 Dec

TDS deposit on third-party payments 7th monthly

TDS Returns: 26Q / 24Q quarterly Quarterly

Form 16A to vendors (TDS certificates) Quarterly

📄 Deed & Registration

Partnership Deed valid and current Always

PAN card of firm in firm name Always

Firm registration with Registrar (if done) Ongoing

GST registration in firm name Always

Bank account in firm name with all partners' KYC Always

EPF / ESI if 20+ employees Monthly

Update GST/IT registrations on partner change On change

⚠️ Penalties

What Happens If Your Firm Misses Deadlines?

Partnership Firms face income tax penalties for late ITR-5 and late advance tax — plus GST and TDS penalties if applicable.

Filing / Obligation	Due Date	Penalty for Default	Risk
ITR-5 (No audit — late)	31 July	₹1,000 if income ≤₹5L / ₹5,000 if income >₹5L	Sec 234F late fee
ITR-5 (With audit — late)	31 October	₹1,000 if income ≤₹5L / ₹5,000 if income >₹5L	Sec 234F late fee
Tax Audit Report (Form 3CB)	30 September	0.5% of turnover or ₹1.5 lakh whichever is lower	IT notice
Advance Tax Shortfall	Quarterly	1% per month interest under Sec 234B/234C	Interest on tax
Partners' ITR-3 (late)	31 Jul / 31 Oct	₹1,000–5,000 per partner under Sec 234F	Each partner penalised
GSTR-3B Monthly (late)	20th monthly	₹50–200 per day depending on turnover	GSTIN suspension
TDS Return Late (26Q)	Quarterly	₹200/day up to tax amount	IT notice + prosecution
No Tax Audit when required	30 September	0.5% of turnover (max ₹1.5 lakh)	Sec 271B penalty

⚙️ How It Works

TAXAJ Handles Partnership Compliance in 4 Steps

📋

Share Firm Details

Partnership Deed, firm PAN, all partners' PAN, previous ITR-5 and ITR-3, GST credentials and accounts via WhatsApp.

→

👨‍💼

CA Assigned in 1 Hour

CA reviews firm turnover, audit applicability, partner salary structure and Sec 40(b) optimisation opportunity.

→

📄

All Returns Prepared

ITR-5 for firm + ITR-3 for each partner + tax audit (if applicable) + GST returns + TDS returns — all prepared together for your approval.

→

✅

Filed & Acknowledged

ITR-5, all partners' ITR-3 and GST returns filed. Acknowledgements shared. Advance tax schedule shared for the year ahead.

🏆 Why TAXAJ

Why 1,000+ Partnership Firms Choose TAXAJ

Firm ITR-5 + partners' ITR-3 + Sec 40(b) planning — all handled by one CA.

📋

ITR-5 + ITR-3 Together

TAXAJ files firm ITR-5 and all partners' ITR-3 together — no coordination headache between different CAs.

💡

Sec 40(b) Optimisation

Partner salary and interest on capital structured to maximise deduction at firm level and minimise overall tax.

📐

Audit Threshold Monitoring

TAXAJ tracks your turnover — alerts you when approaching ₹1 crore (business) or ₹50 lakh (profession) audit threshold.

🗓

WhatsApp Deadline Alerts

15-day advance reminders for ITR-5, ITR-3, advance tax, GST and TDS deadlines on WhatsApp.

💬

WhatsApp-First CA

Your dedicated CA responds same-day on WhatsApp — no call centres, no ticket queues.

🔒

Zero Late Penalties

No TAXAJ partnership firm client has paid a Sec 234F late fee on our watch.

📜

Deed Drafting & Changes

Partnership Deed, supplementary deeds for partner changes, profit ratio changes — CA-drafted and stamped.

🔄

Conversion Support

Convert to LLP or Pvt Ltd when the business grows — TAXAJ handles the full conversion with tax planning.

❓ FAQ

Frequently Asked Questions

A Partnership Firm files ITR-5 — the same form used by LLPs and Association of Persons (AOP). The firm pays income tax at a flat rate of 30% on its net profits. Surcharge of 12% applies if firm income exceeds ₹1 crore. Additionally, a 4% Health and Education Cess is levied on the tax and surcharge. Each partner also files an individual ITR-3 separately to declare their share of profit (tax-free), partner salary and interest income from the firm.

No. The partner's share of profit from a registered Partnership Firm is completely exempt from income tax in the partner's hands under Section 10(2A) of the Income Tax Act. This is because the firm itself pays 30% tax on the profits before distributing the share. However, partner salary received from the firm and interest on capital paid by the firm are taxable as business income in the partner's individual ITR-3. This prevents double taxation on the same income.

Tax audit under Section 44AB is mandatory for a Partnership Firm when: (1) Total business turnover exceeds ₹1 crore in a year (or ₹10 crore if 95% or more transactions are digital), (2) Professional receipts exceed ₹50 lakh in a year, (3) The firm opts out of Presumptive Taxation (Sec 44AD/44ADA). The audit must be conducted by a Chartered Accountant in Form 3CB (audit report) and Form 3CD (statement of particulars). Due date for the audit report is 30 September every year. Without audit, ITR-5 is due 31 July. With audit, ITR-5 is due 31 October.

Section 40(b) of the Income Tax Act governs the deductibility of partner salary and interest from firm income. Key limits: Interest on capital — deductible at maximum 12% per annum. Partner salary — deductible up to specified limits based on book profit: first ₹3 lakh of book profit = 90% or ₹1,50,000 (whichever is higher); balance book profit = 60%. Any salary or interest exceeding these limits is added back as firm income and taxed at 30%. TAXAJ optimises the salary and interest structure in the Partnership Deed to maximise deductions within Sec 40(b) limits.

No. Partnership Firms are governed by the Indian Partnership Act 1932 — not the Companies Act 2013. They have no ROC (Registrar of Companies) or MCA (Ministry of Corporate Affairs) filing requirements. There is no AOC-4, no MGT-7A and no annual return with MCA. The firm is optionally registered with the Registrar of Firms (not ROC) under the Partnership Act — this is not the same as company registration. Compliance is limited to Income Tax (ITR-5), GST (if applicable) and TDS. This makes it significantly simpler than LLP or Pvt Ltd.

Conversion of a Partnership Firm to LLP is tax-neutral under Section 47(xiiib) — no capital gains tax on the transfer of assets and liabilities at the time of conversion if conditions are met. The LLP inherits the firm's assets at their existing book values. Post-conversion, the LLP still files ITR-5 and partners file ITR-3. The key benefit of LLP over Partnership: limited liability protection for partners — their personal assets are protected from firm debts. Also, LLP has separate legal entity status. Downside: LLP has mandatory MCA filings (Form 8 and Form 11) which partnership doesn't. Partnership to LLP Conversion →

A supplementary Partnership Deed must be executed by all partners — including the new partner for admission or the retiring partner for retirement. The deed records the effective date, revised profit-sharing ratio and settlement terms for the retiring partner. After deed execution: (1) GST registration must be amended to reflect changed constitution, (2) Tax registrations updated, (3) Bank account signatories updated, (4) If firm is registered, amendment filed with Registrar of Firms. Income for the year is split between pre-change and post-change periods in the annual ITR-5.

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