Income Tax Slab for Partnership Firm – Tax Rates, AMT, and Filing Guide FY 2025-26

Partnership firm taxation follows different rules from individual taxation — no slab system, no basic exemption, and partners' drawings are treated very specifically. Understanding the firm's tax structure is essential for any partner planning their personal and business finances together.

This page covers:

• Income tax rate for partnership firms
• How partnership firm income is calculated
• Deductions available to partnership firms — partner salary, interest
• AMT (Alternative Minimum Tax) — how it applies to firms
• ITR form for partnership firms — ITR-5
• Due dates for filing — with and without audit
• How partners are taxed on their share of profit
• How firm income connects to partners' home loan eligibility

The income tax on partnership firm in India is charged at a flat 30% rate, with no basic exemption. Unlike the income tax slab system for individuals, the income tax slab for partnership firm India does not provide progressively lower rates or an exemption threshold based on income. A partnership firm pays tax on its taxable profits at the applicable flat rate, regardless of whether its income is high or low. 

For example, if a partnership firm earns Rs. 1 lakh in taxable income, its income tax is Rs. 30,000 (30%), plus applicable cess. By contrast, an individual earning Rs. 1 lakh would generally have Nil tax where the income falls below the applicable basic exemption limit.

Worked example:

• Partnership firm net income: Rs. 40 lakh
• Income tax at 30%: Rs. 12 lakh
• Surcharge: Nil (income below Rs. 1 crore)
• Cess at 4%: Rs. 48,000
• Total tax: Rs. 12,48,000

Partnership firm income tax calculation starts with gross business income and subtracts allowable expenses, depreciation, and eligible partner remuneration and interest to arrive at taxable income.

The resulting book profit is relevant when determining eligible partner remuneration, while the income tax slab for partnership firm India treatment should be considered separately from the firm's taxable-income calculation.

Partner salary (Section 40(b)): The firm can deduct salary paid to working partners, subject to limits:

Partner salary paid within these limits is deductible from firm income and taxable in the partner's hands as salary.

Interest on partner's capital (Section 40(b)): Interest paid to partners on their capital contribution is deductible, subject to a maximum rate of 12% per annum. Interest above 12% is not deductible.

Business expenses: All legitimate business expenses — rent, utilities, employee salaries, professional fees, marketing — are deductible as in any business entity.

Depreciation: Depreciation on firm assets at prescribed rates under Section 32.

AMT under Section 115JC applies to a partnership firm when its regular tax is below 18.5% of its adjusted total income. As part of the broader income tax slab for partnership firm framework, AMT ensures that firms claiming substantial deductions pay a minimum level of tax. The partnership firm tax rate under the regular method is generally 30%, while the AMT rate is 18.5% of adjusted total income. 

For example, a firm with adjusted total income of Rs. 50 lakh and net income of Rs. 10 lakh has regular tax of Rs. 3 lakh (30%), versus AMT of Rs. 9.25 lakh (18.5%). Since Rs. 3 lakh is lower, AMT applies and Rs. 6.25 lakh becomes AMT credit for future years.

This is a crucial distinction:

• Partners' share of profit from the firm is exempt from income tax in the partner's hands under Section 10(2A) — to avoid double taxation (since the firm has already paid tax at 30%)
• Partner salary received from the firm is taxable as salary income in the partner's hands at their applicable individual slab rate
• Partner interest on capital is taxable as income from other sources in the partner's hands

This means partners typically structure firm payments to balance between salary (which is taxed as personal income) and profit share (which is exempt) to optimise total tax.

Form: Partnership firms use ITR-5 for their annual income tax return.

Due dates for FY 2025-26:

Partnership firms with turnover above Rs. 1 crore (or Rs. 50 lakh for professionals) must have their accounts audited under Section 44AB. Partners who are also employees receiving salary from the firm must file their individual ITR (ITR-3) as well.

For home loan applications, partners in a firm are assessed as self-employed individuals. Key documentation:

• ITR-3 (individual) showing partner's salary and profit share components
• Firm's ITR-5 for the past 2-3 years confirming the firm's financial health
• Partnership deed — confirming profit-sharing ratio, partner salary terms
• Balance sheet and P&L — CA-certified

Most lenders, including Bajaj Finance, generally consider only documented salary from the firm; profit share exempt under Section 10(2A) typically does not count as formal income. Salary within Section 40(b) limits can therefore improve documentable income. Consistent filing matters because the income tax slab for partnership firm in India is generally a flat 30%, while three years of stable ITRs helps lenders assess income continuity. 

If your firm income is stable, maximise clearly documented eligible salary and maintain complete financial records before applying. Bajaj Finance offers home loans from 7.25% p.a.* with amounts up to Rs. 15 Crore* and tenures up to 32 years. Check your eligibility today.