Update, 28 September 2026: CBDT has extended two AY 2026-27 dates for taxpayers whose accounts are audited: the tax audit report to 21 October 2026 and the income tax return to 21 November 2026 (announced 28 September 2026). Other dates are unchanged unless separately notified.
Why a partnership firm's tax return looks different from an individual's
A proprietorship has no separate tax identity from its owner — business profit is simply one component of the proprietor's total income, taxed at their individual slab rate (or under the presumptive scheme, if eligible). A partnership firm or LLP is different: it's taxed in its own right at a flat 30%, regardless of the level of profit, with no slab benefit and no choice of tax regime — the regime concept under Section 115BAC applies to individuals and HUFs, not to firms.
A significant recent change affects how partners themselves are taxed on what they receive from the firm. Remuneration, interest, bonus or commission paid to a working partner is deductible to the firm (within limits prescribed under Section 40(b)) and taxable in the partner's hands as business income — and since 1 April 2025, a new TDS provision under Section 194T requires the firm to deduct 10% TDS on such payments once they exceed ₹20,000 in a year, a compliance point that didn't previously exist for partner payments.
What a firm can and can't deduct
- Partner remuneration and interest — deductible within the limits prescribed under Section 40(b), computed on book profit; amounts paid beyond those limits are disallowed.
- Business expenses — generally the same principles as for any business: wholly and exclusively for the business, properly substantiated, and not specifically disallowed.
- Presumptive taxation — an eligible firm (other than an LLP) can opt for Section 44AD, declaring a deemed profit rate on turnover instead of maintaining detailed books, subject to conditions and the consequences of opting out discussed on our tax audit page.
- Depreciation — claimed under the Income Tax Act's own rates, which differ from the rates used in the firm's own books for accounting purposes.
Documents required
- Complete books of account for the year — or, for a presumptive filer, the turnover and receipts records supporting the declared income.
- The partnership deed, including any supplementary deed affecting profit-sharing or partner remuneration during the year.
- Bank statements for all firm accounts.
- Details of partner remuneration, interest and capital accounts, and confirmation that Section 194T TDS has been deducted where applicable.
- GST returns filed during the year, for turnover reconciliation.
- The tax audit report, where the firm's turnover crosses the Section 44AB threshold.
- TDS returns and Form 26AS, for reconciling tax already deducted on the firm's income.
The filing process, step by step
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Confirming the filing basis
Whether the firm is on regular books or the presumptive scheme is confirmed first, since this determines what records are needed and which form applies.
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Partner remuneration and interest computation
Remuneration and interest to working partners are checked against the Section 40(b) limits and the partnership deed's own terms, and Section 194T TDS is confirmed as deducted where the payment exceeds the threshold.
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Reconciliation with GST and TDS records
Turnover as per the books is reconciled against GST returns, and TDS credits are checked against Form 26AS, before the return is finalised.
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Coordination with the tax audit, where applicable
For firms above the Section 44AB threshold, the return is prepared alongside, and consistent with, the tax audit report.
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Filing ITR-5
The return is filed electronically and verified, by the applicable due date depending on whether an audit applies.
Due dates and penalties
| Situation | Date / consequence |
|---|---|
| Firm/LLP not liable to tax audit | Due 31 August 2026 |
| Firm/LLP liable to tax audit under Section 44AB | Due 21 November 2026 (extended from 31 October 2026) |
| Late filing fee (Section 234F) | Up to ₹5,000, since firm income isn't subject to the lower ₹1,000 threshold that applies to individuals with income below ₹5 lakh |
| Failure to deduct Section 194T TDS on partner payments | Disallowance of the corresponding expense in the firm's hands, in addition to the deductor's own TDS default consequences |
Practical notes from our engagements
- Section 194T not yet built into payroll or accounting processes. Since this TDS obligation on partner payments only started from 1 April 2025, several firms are still catching up on deducting and depositing it correctly — this is worth checking specifically if your firm's processes haven't been updated.
- Partner remuneration exceeding the Section 40(b) limits. Amounts paid to partners beyond what Section 40(b) allows aren't deductible to the firm, even though they're genuinely paid — a mismatch between the partnership deed's terms and the statutory limit is a recurring finding.
- Presumptive scheme exit consequences overlooked. As with individuals, a firm that declares profit below the presumptive rate after using Section 44AD can trigger both an audit requirement and restrictions on re-entering the scheme — see our tax audit page for the detail.
- Firm-level TDS credits not reconciled before filing. TDS deducted by the firm's own customers needs to be reconciled against Form 26AS before the return is filed, the same as for any other taxpayer.
How we handle business and firm tax filing
We confirm the filing basis — regular books or presumptive — before anything else, and check partner remuneration against both the partnership deed and the Section 40(b) statutory limits. Where the firm's turnover triggers a tax audit, the return is prepared consistently with that audit report rather than as a separate exercise.
Related services
Frequently asked questions
How is a partnership firm taxed differently from an individual?
A firm is taxed at a flat 30% rate on its income, with no slab structure and no choice of tax regime — unlike an individual, who's taxed on a slab basis and can choose between the old and new regimes.
What is Section 194T, and does it apply to my firm?
It's a TDS provision, effective from 1 April 2025, requiring a firm to deduct 10% TDS on remuneration, interest, bonus or commission paid to a partner once the payment exceeds ₹20,000 in a year. It applies to partnerships and LLPs paying their working partners.
Is there a limit on how much a firm can pay its partners as remuneration?
Yes — Section 40(b) prescribes limits on deductible partner remuneration and interest, computed on the firm's book profit. Amounts paid beyond those limits aren't deductible to the firm.
Can a partnership firm opt for a concessional tax rate like companies can?
No — the concessional rate regimes under Sections 115BAA and 115BAB are specific to domestic companies. Partnership firms and LLPs are taxed at the flat 30% rate without an equivalent option.
Can an LLP use the presumptive taxation scheme under Section 44AD?
No — Section 44AD is available to eligible firms other than LLPs. An LLP that wants a simplified compliance basis doesn't have the same presumptive option available to a partnership firm.
What's the filing due date for our firm this year?
31 August 2026 if no tax audit applies, or 21 November 2026 (extended from 31 October 2026) if the firm's turnover crosses the Section 44AB threshold and a tax audit is required.
Does a proprietorship file a separate tax return from the owner?
No — a proprietorship has no separate tax identity. Its business income is reported as part of the proprietor's own individual ITR, typically ITR-3 or, where eligible, ITR-4 under the presumptive scheme.
What happens if we don't deduct TDS under Section 194T on partner payments?
The corresponding expense can be disallowed in the firm's own computation, in addition to whatever consequence applies to the firm as a defaulting deductor under general TDS provisions.