Filing income tax for partnership firms and LLPs in India must be done carefully to ensure compliance and avoid penalties. Many business owners in India choose the partnership firm or limited liability partnership (LLP) structure. However, both types have distinct tax rules, deadlines and deductions. In this article let’s explore more about this.
Understanding tax rates and entity status:
When you are filing income tax for partnership firms and LLPs in India, you need to know how they are treated under the law. A partnership firm (including one registered under the Indian Partnership Act, 1932) and an LLP (under the Limited Liability Partnership Act, 2008) are treated as separate taxable entities.
For assessment year 2025-26, the tax rate for such entities is a flat 30% on total income. If total income exceeds ₹1 crore, a surcharge of 12% applies on the tax and an additional health & education cess of 4%. Moreover, if the normal tax liability falls below 18.5% of book profit (after adjustments) the entity may become liable for Alternate Minimum Tax (AMT) at 18.5%.
Return Forms & Compliance Requirements:
When filing income tax for partnership firms and LLPs in India, you must use the appropriate ITR form. For instance, form ITR-5 is applicable for a firm or LLP. Moreover, LLPs have additional compliance such as annual filings with the Ministry of Corporate Affairs (MCA) and maintenance of accounts under the Limited Liability Partnership Act, 2008.
It is therefore crucial that you maintain accurate books, reconcile partner accounts, and verify that partner remuneration and interest meet the statutory limits.
Deductible Remuneration, Interest & New TDS Rules:
Within the scope of filing income tax for partnership firms and LLPs in India, partner remuneration and interest paid to partners can be deducted up to specific limits under Section 40(b). For example, up to ₹3 lakh or 90 % of book profit (whichever is higher) may be allowed for the first ₹6 lakh of book profit from FY 2025-26.
A major change effective 1 April 2025 is the introduction of Section 194T, which mandates TDS at 10 % on payments to partners (salary, bonus, interest) exceeding ₹20,000 in a financial year. This means you must register and deduct TDS where applicable.
Filing process, deadlines and best practices:
Finally, for filing income tax for partnership firms and LLPs, you should follow these practical steps:
- Ensure the partnership/LLP is registered and has a valid PAN, TAN (for TDS) and books of accounts.
- Compute book profit and taxable income using the deductions and rules noted above.
- File ITR-5 before the due date: typically 31 July for non-audit cases, or 31 October if audit is required (for FY 2024-25) – depending on turnover. LoansJagat
- If turnover exceeds certain thresholds or book profit deduction is claimed, check whether Alternate Minimum Tax (AMT) applies: at 18.5% + cess & surcharge. Tradeviser
- Keep partner details, share of profits, interest and remuneration clearly documented; non-compliance can attract penalties and disallowances. mint+1
As a tip: update the partnership deed before the end of the financial year if you plan to change remuneration limits or profit-sharing structure; this helps smooth filing. By following these steps, you can approach filing income tax for partnership firms and LLPs with clarity and compliance.
Conclusion:
Filing income tax for partnership firms and LLPs in India requires from-the-ground awareness of form selection, tax rates, deductions, TDS and audit obligations. With correct bookkeeping and timely filings you can stay compliant and optimise tax outcomes. Ready to file your business taxes? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Filing Income Tax for Partnership Firms and LLP here – https://cleartax.in/partnership-firm-tax