A partnership firm is formed by a partnership deed between two or more persons under the Indian Partnership Act, 1932. The deed sets out capital, profit sharing, interest and remuneration to partners, and what happens when a partner retires.
Registration with the Registrar of Firms is optional, but an unregistered firm cannot file a suit against third parties to enforce a contract, under Section 69. In Maharashtra, the deed must be stamped as per the Maharashtra Stamp Act before registration.
The firm gets its own PAN and files its return in ITR-5. Firms pay tax at a flat 30% plus surcharge and cess, and interest and remuneration to working partners are deductible within the limits of Section 40(b).
Key points
- Minimum two partners; liability of partners is unlimited
- Stamp the deed, then register with the Registrar of Firms
- PAN and TAN in the firm’s name
- Partners’ share of profit is exempt in their hands
- Changes in partners require a revised deed and intimation
General information only, not professional advice. Section references are to the Income-tax Act, 1961; corresponding provisions of the Income-tax Act, 2025 apply from 1 April 2026. Thresholds and dates may change by notification.
