How the firm itself is taxed, and which return it files
A firm is taxed separately from its partners, at a flat rate, and files its own return.
| Item | Position for FY 2025-26 (AY 2026-27) |
|---|---|
| Tax rate on the firm | 30%, plus a 12% surcharge where total income exceeds ₹1 crore, plus 4% health and education cess |
| Return form | ITR-5. A firm eligible for presumptive taxation with total income up to ₹50 lakh can use ITR-4 |
| Presumptive taxation | Sections 44AD and 44ADA are available to a partnership firm, but not to an LLP |
| Partner's share of profit | Exempt in the partner's hands under section 10(2A), because the firm has already paid tax on it |
| Partner's remuneration and interest | Taxable in the partner's hands as business income, reported in ITR-3, with the 194T credit claimed there: see ITR for business income |
| Tax audit | Section 44AB applies above ₹1 crore of turnover, or ₹10 crore where cash receipts and payments stay within 5%, and above ₹50 lakh of professional gross receipts. The audit report has its own, earlier due date: see tax audit |
FY 2025-26 is governed by the Income-tax Act, 1961. The Income-tax Act, 2025 came into force on 1 April 2026 and governs Tax Year 2026-27, the year the firm is in now.
The firm's year, date by date
| When | What is due |
|---|---|
| 7th of each month | Deposit the TDS deducted in the previous month, including any 194T deduction. For deductions in March, the deposit date is different: we confirm it for your case |
| Quarterly | File the TDS statement for the quarter. For quarters from 1 April 2026 the statement forms are renumbered under the Income-tax Act, 2025: see TDS return filing |
| Monthly or quarterly | GST returns, where the firm is registered: see GST return filing |
| 15 June, 15 September, 15 December, 15 March | Advance tax instalments, where the firm's tax liability for the year will exceed ₹10,000 |
| 31 August | Return due date for a firm whose accounts do not have to be audited. For AY 2026-27 that date was 31 August 2026 and it has passed |
| 31 October | Return due date for a firm in tax audit. For AY 2026-27 this is 31 October 2026 |
| 31 December | Last date for a belated return for AY 2026-27, that is 31 December 2026, with a late fee under section 234F |
| 31 March | Last date for a revised return for AY 2026-27, that is 31 March 2027 |
Registration of the firm with the Registrar of Firms is a separate, one-off matter and is not part of this calendar: see partnership firm registration.
What a 194T default actually costs
Four consequences run in parallel, which is why firms that discover the problem late end up paying more than the tax itself.
- Interest under section 201(1A) on the TDS not deducted or not deposited, running from the date it should have been deducted.
- Disallowance under section 40(a)(ia) of 30% of the expenditure on which tax was not deducted, in the firm's own computation, which pushes up the firm's tax at 30%.
- A ₹10,000 penalty under section 272BB for failing to comply with the TAN requirement, separate from anything above.
- A late fee on the TDS statement, once it is filed after the quarterly due date.
If the firm has no TAN, fix that first: it is the cheapest of the four to cure. See TAN registration.
Section 40(b): what the firm can actually deduct
Section 194T decides what the firm withholds. Section 40(b) decides what it can deduct, and the two are different questions.
- Remuneration is deductible only to a working partner, and only where the partnership deed authorises it and either quantifies it or gives a method of quantifying it. For FY 2025-26 and FY 2026-27 the cap is, on the first ₹6,00,000 of book profit or where the firm has a loss, ₹3,00,000 or 90% of book profit, whichever is higher; and on the balance of book profit, 60%.
- Interest on partner capital is deductible up to 12% a year, simple interest, under section 40(b)(iv).
- Anything above these caps is added back in the firm's computation, so the firm pays tax on it at 30% while the partner is also taxed on the receipt.
A deed that says nothing about remuneration, or that neither quantifies it nor gives a method, results in the whole amount being added back. That is a drafting problem, and it is fixable in advance: the fix is a supplementary partnership deed. If the partners are considering a company instead, see converting to a private limited company.
Fee
| Item | Amount |
|---|---|
| Annual firm compliance: 194T computation, quarterly TDS statements, ITR-5 and the 40(b) reconciliation | From ₹4,999 a year |
| Government fee on the compliance work | No government fee |
| TAN application, where the firm does not have one | ₹65 plus GST, paid to the department: see TAN registration |
| Tax audit, where section 44AB applies | See tax audit |
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 22 September 2026.
What moves the fee: the number of partners, whether books have to be written up, whether GST returns are included, and whether an audit applies. We quote in writing before we start.