Question 1

What form and tax rate applies to a partnership firm?

Accepted Answer

Partnership firms file ITR-5 at a flat 30% plus surcharge (12% if income > ₹1 crore) plus 4% cess — not eligible for individual slab rates or rebates. AMT under Section 115JC does not apply to firms (only to LLPs). Due date: 31 October if tax audit applies, otherwise 31 July.

Question 2

What is the consequence of an unregistered partnership firm?

Accepted Answer

An unregistered firm under the Partnership Act 1932 cannot claim deductions for partner remuneration and interest under Section 40(b) of the Income Tax Act. Section 184 requires the firm to be registered with the Registrar of Firms and the Instrument of Partnership to be filed. Unregistered firms pay higher effective tax as all profit is assessed at firm level without the splitting benefit.

Question 3

How is a partner's share of profit from a firm taxed?

Accepted Answer

A partner's share of profit from a registered firm is entirely exempt in the partner's hands under Section 10(2A) — no double taxation. However, remuneration and interest received from the firm are taxable in the partner's hands as business income under Section 28(v) and Section 28(iii) respectively.

Question 4

Can a partnership firm carry forward business losses?

Accepted Answer

Yes — but with a condition under Section 78: if there is a change in the constitution of the firm (a partner retires or dies), only the continuing partners' share of losses can be carried forward. The outgoing partner's share of loss is forfeited. Losses can be carried forward for 8 assessment years under Section 72.

Question 5

What if the deed does not specify remuneration or interest?

Accepted Answer

Remuneration and interest are deductible under Section 40(b) only if the partnership deed specifically authorises and quantifies them. A deed that is silent or states "as mutually agreed" is insufficient — the deduction will be disallowed in full. The deed must be in existence before the start of the relevant financial year for that year's deduction to be available.

Itr Partnership Firm

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