At a glance
| Governing law | Is it compulsory | Where it is registered | Government fee | What it decides for tax |
|---|---|---|---|---|
| Indian Partnership Act, 1932 | No, but the Act's defaults apply without it | Firm registration is with the Registrar of Firms of your state, and it is optional | No central fee. Stamp duty and the Registrar's fee are state levies | Whether remuneration and interest to partners are deductible under section 40(b) |
Is a partnership deed compulsory
No. A partnership under section 4 of the Indian Partnership Act, 1932 is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The agreement can be oral, and a firm can exist without a written word.
What is not optional is the consequence of not having one. Where the deed is silent or does not exist, the Act's own provisions apply, and they are almost never what the partners intended. In practice you also cannot open a current account, get a firm PAN, get GST registration, apply for Udyam registration or bid for work without a written deed, so the real question is not whether to have one but what to put in it. If a tender or a bank also asks for a net worth certificate, see net worth certificate for a partnership.
What the 1932 Act gives you if the deed is silent
These are the default rules in section 13, and they are the reason a two-line deed is expensive.
| If the deed says nothing about | The Act's default |
|---|---|
| Whether a partner is paid for working in the business | A partner is not entitled to receive remuneration for taking part in the conduct of the business |
| How profits and losses are shared | Partners share equally in the profits, and contribute equally to the losses, whatever they each put in |
| Interest on capital | Where a partner is entitled to interest on capital subscribed, it is payable only out of profits |
| Interest on money advanced beyond agreed capital | The partner is entitled to interest at six per cent per annum |
| Liability for the firm's acts | Every partner is liable jointly with all the other partners, and also severally, for all acts of the firm done while they are a partner |
Read the first two rows together. A partner who works full time in the business and a partner who only contributed money share the profits equally, and the working partner is entitled to nothing extra, unless the deed says otherwise. That is the single most common reason a family firm falls out.
What a partnership deed must contain
The Act does not prescribe a form, so the content is a drafting decision. A deed we would sign off carries all of this.
| Clause | What it has to settle |
|---|---|
| Parties and the firm | Full names, addresses and PANs of the partners, the firm's name and its principal place of business |
| Nature of business | Described widely enough to cover what you will do next year, and specifically enough that a bank and the Registrar accept it |
| Duration | At will, for a fixed term, or for a particular venture. Say which, because it changes how the firm ends |
| Capital | What each partner contributes, in money or in kind, and whether it can be withdrawn |
| Profit and loss sharing | The ratio, in figures, and whether losses follow the same ratio |
| Partner remuneration | Who is a working partner, what each is paid, and how it changes. This is a tax clause: see below |
| Interest on capital and on loans | Rates, and from when. Also a tax clause |
| Drawings | What each partner may take monthly, and what happens if they exceed it |
| Duties, authority and restrictions | Who signs cheques and contracts, spending limits, what needs all partners to agree, and what no partner may do alone |
| Banking | The bank, the mandate and the signing authority |
| Books and accounts | Where they are kept, the financial year, who audits and what access each partner has |
| Admission of a partner | The consent needed and the terms on which someone new comes in |
| Retirement, expulsion and death | Notice periods, how the outgoing partner's share is valued and paid, whether the firm continues, and what happens to goodwill |
| Dissolution | The events that dissolve the firm and how assets are distributed |
| Dispute resolution | Arbitration or a named court, with the seat named and not only the venue |
| Non-compete and confidentiality | Restraints during the partnership, and confidentiality that survives it |
The clauses most deeds get wrong
- Goodwill. Most deeds are silent, and the fight on a retirement is always about goodwill. Say whether the outgoing partner is paid for it and on what basis.
- Valuation of an outgoing share. "At a value agreed between the partners" is not a mechanism. Name a basis or a valuer.
- What happens on death. The default position is often not continuation. If you want the firm to carry on with the survivors, say so, and say what the legal heirs receive.
- Expulsion. A power to expel a partner has to be conferred by the deed and exercised in good faith. A deed with no expulsion clause leaves you with dissolution as the only route.
- Deadlock in a two-partner firm. With two partners and an equal ratio, there is no majority. Write a mechanism.
- Continuation despite a change. Say that the firm continues on a change in constitution, and that a reconstitution deed will record it.
The tax clauses: why the deed decides your deduction
This is the part that separates a drafted deed from a downloaded one. Under section 40(b) of the Income-tax Act, 1961, what a firm pays its partners is deductible only on conditions, and three of them are conditions about the deed itself.
- Payment to a non-working partner is not deductible. Salary, bonus, commission or remuneration by any name, paid to a partner who is not a working partner, is disallowed. So the deed has to identify who the working partners are.
- A payment not authorised by the deed, or not in accordance with its terms, is not deductible. A resolution, a board note or a practice will not do it. It has to be in the deed.
- A payment relating to a period before the date of the deed is not deductible, even if the deed is later drafted to authorise it. So the date of the deed matters, and a retrospective clause does not rescue the earlier period.
The practical consequence: if you start paying yourselves in April and sign a deed in November, the April to November remuneration is not deductible. Get the deed dated before the payments start.
Partner remuneration
Remuneration to working partners is deductible up to a ceiling computed on book profit. For assessment year 2025-26 onwards, the deductible aggregate is ₹3,00,000 or 90% of the book profit on the first ₹6,00,000 of book profit, whichever is more, and 60% of the balance of the book profit.
Two drafting points follow. First, the deed should authorise remuneration up to the maximum allowable under the Act rather than fixing a rupee figure, so that the clause does not have to be redrafted every time the law or the profit changes. Second, it should say how the amount is apportioned between the working partners, because the ceiling is on the aggregate.
Interest to partners
Interest paid to a partner on capital or on a loan is deductible up to twelve per cent simple interest per annum, for the period after the date of the deed, and only if the deed authorises it. Anything above 12%, or interest paid where the deed is silent, is added back.
The deed should therefore authorise interest at a rate not exceeding 12% simple interest per annum, and say whether interest runs on the opening balance, the monthly balance or the closing balance, because that is what the accounts will have to follow.
Interest received by a partner and remuneration are taxable in the partner's own hands. The partner's share of the firm's profit is not: it is exempt under section 10(2A) of the Income-tax Act, 1961, because the firm has already paid tax on it.
TDS on payments to partners
From FY 2025-26, tax is deductible at source on certain payments by a firm to its partners under section 194T of the Income-tax Act, 1961. We do not publish the rate or the threshold, because we have only one source for those figures. What the deed can do is make the position workable: state that payments to partners are subject to deduction of tax at source where the law requires it, and that the firm will hold a TAN and deduct accordingly. See TAN registration and TDS return filing.
Which Act applies to which year. FY 2025-26, being assessment year 2026-27, is under the Income-tax Act, 1961. Tax Year 2026-27 onwards is under the Income-tax Act, 2025, which came into force on 1 April 2026. We have not verified the 2025 Act's equivalents of section 40(b), section 10(2A) or section 194T, so this page states the 1961 Act positions and we confirm the current-year position in writing before the deed is finalised.
Registering the firm, and what section 69 costs you if you do not
Registration of a firm is optional under the Indian Partnership Act, 1932 and can be effected at any time, not only at the start. There is no penalty for not registering. There is a disability, and it is a serious one.
Section 69 is the provision. In plain words:
- An unregistered firm cannot sue to enforce a contract. A suit to enforce a right arising from a contract cannot be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are shown in the Register of Firms as partners.
- A partner of an unregistered firm cannot sue the firm or the other partners to enforce a right arising from a contract or conferred by the Act.
- You can still be sued. The disability runs one way. A customer, a supplier or a bank can sue your unregistered firm without difficulty.
- Set-off is limited. An unregistered firm cannot claim a set-off above the statutory limit in a suit brought against it.
- The exceptions are narrow. Suits for dissolution of the firm, for accounts of a dissolved firm, and to realise the property of a dissolved firm are outside the bar, as are certain claims by an official assignee or receiver.
Put commercially: an unregistered firm cannot enforce its own invoices in court. If you sell on credit, register. See partnership firm registration for the process and the state-by-state position, and recovery notice for the step before a suit.
Where the firm is registered
Registration is with the Registrar of Firms appointed by the State Government under section 57, on a statement in the state's format under section 58, and once registered, changes in the constitution or dissolution are recorded under section 63.
The office and the portal differ by state. In West Bengal it is the Office of the Registrar of Firms, Societies and Non-Trading Corporations, with applications through registrarfsntc.wb.gov.in, and a trade licence is among the documents asked for. Delhi registers firms through firmsociety.delhi.gov.in. Maharashtra registers through the Registrar of Firms, Maharashtra State, at rof.mahaonline.gov.in. Karnataka registers through the Department of Stamps and Registration under the Karnataka Partnership (Registration of Firms) Rules, 1954.
We do not publish state Registrar of Firms fees on this page, because state fee tables in this project are not verified to a standard we will put a number to. We confirm your state's fee in writing before you pay it.
Stamping and execution
- Stamp duty on a partnership deed is a state levy, charged under the relevant State Stamp Act or the Indian Stamp Act, 1899 as applied to your state. There is no national rate, and we do not publish a figure for any state. We confirm the position before you execute.
- Execute on stamp paper of the correct value, or through your state's e-stamping facility where it is available.
- Every partner signs, and the deed is usually signed in as many originals as there are partners, plus one for the firm.
- Witnesses and notarisation are matters of practice rather than a statutory requirement for a deed of this kind. A notarised copy is often what a bank asks for.
- If immovable property is brought into the firm, the instrument may need registration with the sub-registrar under the Registration Act, 1908, and that has to be checked case by case rather than assumed either way.
- Date it before the money moves. The section 40(b) point above turns on the date of the deed.
Adding, retiring or removing a partner
The deed is not a one-time document. Every change needs a supplementary or reconstitution deed, and the changes have to be recorded with the Registrar if the firm is registered.
| Event | What the Act requires | What you do |
|---|---|---|
| A new partner joins | No person may be introduced as a partner without the consent of all the existing partners, subject to contract between the partners | A reconstitution deed with the new ratios, capital and remuneration, and the change recorded under section 63 |
| A partner retires | Retirement is with the consent of all the partners, in accordance with an express agreement, or by notice where the partnership is at will. A retiring partner's liability to third parties for acts after retirement continues until public notice is given | A retirement deed, the outgoing share settled on the basis the deed sets, public notice, and the change recorded |
| A partner is expelled | A partner can be expelled only where the power is conferred by contract between the partners and is exercised in good faith | Follow the deed's clause exactly. Without such a clause, expulsion is not available |
| A partner dies | Whether the firm continues depends on the contract between the partners | The deed's continuation clause governs. Settle the heirs' entitlement on the basis stated |
| The ratio or remuneration changes | Nothing, but section 40(b) does | A supplementary deed dated before the change takes effect, or the deduction fails |
| The firm is dissolved | Accounts are settled and the change is recorded | Dissolution deed, public notice, and the tax and GST consequences handled |
Two practical rules. Record every change with the Registrar if the firm is registered, because section 69 works off what the Register of Firms shows. And never change a remuneration or interest clause by informal agreement: the deduction turns on the deed.
What you cannot do with a partnership deed
- A minor cannot be made a partner. A person who is a minor may not be a partner in a firm, but may be admitted to the benefits of partnership with the consent of all the partners. That is a different thing and needs its own drafting.
- A firm cannot have more than fifty partners. Section 464 of the Companies Act, 2013 with Rule 10 of the Companies (Miscellaneous) Rules, 2014 caps an association or partnership at fifty persons.
- A deed does not give you limited liability. Every partner is liable jointly and severally for the acts of the firm. If limited liability is what you are after, the deed is the wrong document: see LLP registration.
- A deed does not survive a conversion unchanged. Converting to an LLP or to a private limited company replaces it: see partnership to private limited conversion.
Fees
| Item | Amount |
|---|---|
| Regikart professional fee, drafting a partnership deed | Fee on quote after a free review |
| Firm registration with the Registrar of Firms | Our confirmed fee for partnership firm registration is from ₹1,499: see partnership firm registration |
| Reconstitution, retirement or dissolution deed | Quoted in writing after we see the existing deed |
| Central government fee on a deed | None |
| Stamp duty | A state levy under the relevant State Stamp Act. No national rate. We confirm your state's position before execution |
| Registrar of Firms fee | A state fee. We confirm the amount in writing before you pay it |
| Notarisation, if you want it | Notary's charge at actuals |
| PAN and TAN for the firm | Department charges at actuals: see PAN registration and TAN registration |
Professional fees exclude GST at 18%. Government fees, where they apply, are paid at actuals to the department and are shown separately. Fees verified on 27 September 2026.
How we do it
| Step | What happens | Who does it |
|---|---|---|
| 1. Free review | You tell us the business, the partners, the capital, the split and who will actually work in the firm | Regikart |
| 2. Clause note and quote | We set out the clauses your deed needs, the remuneration and interest wording that keeps the section 40(b) deduction, whether registration is worth it for your business, and what your state charges. Quoted in writing | Regikart |
| 3. Drafting | The advocate drafts the deed to those facts | Advocate |
| 4. One round of changes | Every partner reads it and comes back. The advocate issues the revised draft | Advocate |
| 5. Stamping and signing | Stamp duty confirmed for your state, the deed executed and signed by all partners | You, with our guidance |
| 6. Registration and set-up | Firm registration with the Registrar of Firms where you want it, then PAN, TAN, GST and Udyam as the business needs them, and a tax audit once the firm crosses the audit threshold | Regikart |
Step 2 is the part a template cannot give you, and step 6 is the part a template leaves you to do alone.
What we need from you
- The partners, with names, addresses and PANs, and who among them will work in the business.
- The business, described plainly, and the principal place of business.
- Capital, what each partner is bringing, in money or in kind, and when.
- The profit and loss ratio you have agreed, and whether losses follow the same ratio.
- What partners will be paid, and what interest on capital or on loans you intend.
- Whether you want the firm registered, and the state, because the process and the documents are state-specific.
- Any existing deed, if this is a reconstitution rather than a new firm, and the date it was signed.
Mistakes we see in partnership deeds
- No remuneration clause. Section 13(a) then applies and no partner is entitled to be paid for working in the business, and section 40(b) disallows the deduction anyway.
- A fixed rupee remuneration figure. It goes stale, and anything paid above it is disallowed. Authorise up to the maximum allowable under the Act instead.
- The deed dated after the payments started. Everything before the date of the deed is disallowed, and a retrospective clause does not fix it.
- Interest above 12%. Deductible only up to twelve per cent simple interest per annum, for the period after the date of the deed.
- Unequal capital and an unstated ratio. Without a stated ratio, profits are shared equally whatever each partner put in.
- The firm never registered, and credit sales made anyway. Section 69 means the firm cannot sue to enforce its own contracts.
- Changes made by WhatsApp. A new partner, a changed ratio or a new salary needs a supplementary deed and a filing with the Registrar.
- No goodwill and no valuation basis. The two things a retiring partner will actually argue about.
- Nothing about death. The heirs and the surviving partners then negotiate from scratch, usually badly.
Why partners use Regikart
Regikart is a CA and CS firm with 250+ clients. The deed is drafted and issued by an advocate we work with. Regikart writes the tax clauses, confirms the state position and does the registration and set-up.
- The deed is drafted around the deduction. The remuneration and interest clauses are written so that section 40(b) does not disallow what you pay yourselves. That is a tax judgment, not a drafting template.
- The section 69 decision is made deliberately. We tell you whether registration is worth it for your business, rather than selling it by default or ignoring it.
- State-specific, and honest about it. Stamp duty and Registrar of Firms fees vary by state and we confirm yours in writing rather than publishing a number we cannot stand behind.
- The whole set-up in one place: the deed, registration, PAN, TAN, GST, Udyam and then the annual filings: see partnership firm compliance.
- Offices in Kolkata (Head Office), Delhi and Bengaluru, with clients across India served online. Call or WhatsApp +91 70444 94804, or email [email protected].
Related: partnership firm registration · partnership firm compliance · LLP registration · partnership to private limited · ITR for business · legal contract drafting