Partner’s Share of Profit: ITR Filing AY 2026-27

If you are a partner in a partnership firm or Limited Liability Partnership (LLP), your share of profit is generally exempt in your hands, but your remuneration, bonus, commission and interest from the firm are taxable. For filing of ITR by a partner with a share of profit received from the partnership firm in AY 2026-27, the correct reporting depends on the nature of income received during FY 2025-26.

A partner may need to file ITR-3 where the firm pays taxable remuneration or interest. The exempt profit share must still be disclosed in the appropriate schedules. This article explains the taxation of a partnership firm partner’s share of profit, ITR-3 reporting, Section 10(2A), Section 28(v), Section 194T and the impact of the new tax regime.

ITR filing by partner receiving share of profit from partnership firm AY 2026-27

The tax treatment depends on what the partner receives from the firm:

Amount received from firm	Tax treatment for partner
Share of profit	Exempt under Section 10(2A)
Salary or remuneration	Taxable as business or professional income under Section 28(v)
Bonus or commission	Taxable under Section 28(v)
Interest on capital or loan	Taxable under Section 28(v)
Drawings or withdrawal of capital	Not income and not taxable
Share of loss	Generally not taxable as a deduction against other income

The partnership firm pays income tax on its taxable profits. Therefore, the law generally prevents the same profit from being taxed again in the partner’s hands by exempting the partner’s share under Section 10(2A) of the Income Tax Act, 1961. You can read the relevant provisions in the Income Tax Act on the official Income Tax Department website.

Is share of profit from a partnership firm exempt under Section 10(2A)?

Yes. A partner’s share of profit from a partnership firm is exempt under Section 10(2A), provided it represents the partner’s share in the firm’s taxable profits.

The exempt amount is determined according to the profit-sharing ratio specified in the partnership deed or LLP agreement. It is not the same as salary, interest or commission received from the firm.

Example of exempt share of profit

Assume a partnership firm has the following details for FY 2025-26:

• Taxable profit of firm after allowable deductions: ₹20,00,000
• Partner A’s profit-sharing ratio: 40%
• Partner A’s share of profit: ₹8,00,000
• Remuneration paid to Partner A: ₹6,00,000
• Interest paid to Partner A: ₹1,20,000

Partner A’s tax treatment will generally be:

• ₹8,00,000 share of profit: Exempt under Section 10(2A)
• ₹6,00,000 remuneration: Taxable under Section 28(v)
• ₹1,20,000 interest: Taxable under Section 28(v)

The exempt share does not become taxable merely because the partner also receives remuneration or interest. Each receipt must be classified separately.

Partner remuneration and share of profit in ITR AY 2026-27

A common mistake is to treat the entire amount received from the firm as exempt. This is incorrect.

Share of profit

The share of profit is exempt under Section 10(2A). It should not be included in taxable business income. However, it should be disclosed as exempt income in the return.

Remuneration, salary, bonus and commission

Salary, remuneration, bonus and commission received by a partner from the firm are taxable under Section 28(v). The section covers payments received by a partner from a firm in which the partner is a partner.

These amounts are not taxed under the head “Salaries”. Even if the partnership deed calls the payment “salary”, the partner must report it as profits and gains of business or profession.

Interest received from the firm

Interest received on capital or loans is also taxable under Section 28(v). The partnership firm can claim a deduction only if the payment satisfies the conditions and limits under Section 40(b).

For FY 2025-26, interest paid to a partner is generally deductible for the firm only up to 12% simple interest per annum, subject to the other requirements of the Act. Any excess may be disallowed in the firm’s return, but the taxability in the partner’s hands should be examined based on the amount credited or paid under the partnership agreement.

How to report partnership firm profit share in ITR-3

If you have taxable income from a partnership firm, you will generally need ITR-3. This applies particularly where you receive remuneration, commission, bonus or interest from the firm.

The reporting process generally involves the following schedules:

1. Report the partnership firm in Schedule IF

Schedule IF contains information relating to investments in partnership firms. Enter details such as:

• Name of the partnership firm or LLP
• Permanent Account Number of the firm
• The firm’s profit-sharing ratio
• Amount of share in profit
• Amount of remuneration, interest or other payment received, where applicable

Use the firm’s financial statements, computation of income and partner capital account to ensure that the figures match.

2. Report taxable receipts in business income

Remuneration, bonus, commission and interest received from the firm must be included in the business or professional income schedule.

These receipts should not be entered under:

• Salary income
• Income from other sources
• Exempt income alone

The partner’s taxable income from the firm is generally reported as business income under Section 28(v).

3. Disclose exempt share of profit in Schedule EI

The exempt share of profit should be disclosed in Schedule EI, or the relevant exempt income schedule in the applicable ITR utility, under the field for exempt income under Section 10.

This disclosure is important even though the amount does not increase taxable income. It explains the source of funds and prevents a mismatch between the partner’s bank credits, capital account and income-tax return.

4. Match the figures with Form 26AS and AIS

Taxable remuneration and interest may be subject to Tax Deducted at Source (TDS). Review:

• Form 26AS
• Annual Information Statement (AIS)
• Tax Information Summary (TIS)
• TDS certificates issued by the firm
• The partner’s capital account

The exempt share of profit may not appear as TDS income, but the amount should match the firm’s financial records and partner statement.

The Income Tax e-Filing portal provides the applicable return forms, instructions and validation rules for AY 2026-27.

ITR-3 filing requirements for partnership firm partners

A partner should generally consider ITR-3 in the following situations:

• The partner receives remuneration from the firm.
• The partner receives interest from the firm.
• The partner receives commission or bonus.
• The partner has income from any other business or profession.
• The partner has business-related expenses or other income requiring business-income reporting.
• The partner is a partner in one or more firms and must provide detailed financial information.

Can a partner file ITR-2 if only exempt share of profit is received?

If the individual has only exempt share of profit from the firm and no taxable business or professional income, ITR-2 may be available, subject to the other eligibility conditions of that form.

However, the partner must not use ITR-2 merely to avoid reporting taxable remuneration or interest. If any receipt is taxable under Section 28(v), ITR-3 is generally the appropriate return.

A partner with only exempt profit share should also disclose:

• The partnership firm’s details in the applicable schedule
• The exempt amount under Section 10(2A)
• Any other income earned during FY 2025-26
• Details of assets, liabilities or foreign income, wherever applicable

New Section 194T: TDS on partner payments from 1 April 2025

A major compliance change relevant to ITR filing by a partner receiving share of profit from a partnership firm in AY 2026-27 is Section 194T.

Section 194T applies from 1 April 2025. It requires the firm to deduct TDS at 10% on specified payments to a partner if the aggregate amount exceeds ₹20,000 during the financial year.

The specified payments include:

• Salary
• Remuneration
• Commission
• Bonus
• Interest

The provision does not generally apply to the partner’s share of profit because a profit share is not salary, remuneration, commission, bonus or interest.

Example of Section 194T

Suppose a firm credits the following amounts to a partner during FY 2025-26:

• Remuneration: ₹4,00,000
• Interest: ₹80,000
• Share of profit: ₹6,00,000

TDS under Section 194T would generally apply to the remuneration and interest, subject to the threshold and other conditions. The exempt share of profit would not form part of the specified payment base.

The partner should claim credit for the TDS in the ITR only after checking that it appears correctly in Form 26AS or the AIS. The firm must also comply with the applicable TDS deposit and return filing requirements. The official Finance Act, 2025 materials provide the legislative details for the new provision.

Taxation of partnership firm partner share of profit AY 2026-27

The partner’s exempt profit share is not included in total taxable income. However, it can have practical implications.

Exempt income and loss adjustment

A partner cannot normally use an exempt share of profit to absorb taxable losses or claim a deduction against other taxable income. The amount remains exempt and is disclosed separately.

Capital account and withdrawals

The following transactions should not be confused:

• Share of profit: Exempt income
• Capital contribution: Investment or transfer of funds, not income
• Withdrawal of capital: Not income
• Drawings against expected profit: Not automatically taxable
• Remuneration credited to capital account: Taxable if it represents payment under Section 28(v)

The accounting description alone does not decide the tax treatment. The partnership deed, firm’s books and nature of the transaction are important.

Firm’s disallowance under Section 40(b)

If the firm pays remuneration or interest in breach of Section 40(b), the firm may lose the deduction. This does not automatically convert the partner’s share of profit into taxable income.

The partner should report amounts based on the actual nature of the receipt and the applicable provisions. The firm and partner should maintain consistent records to avoid mismatches.

New tax regime for partnership firm partner AY 2026-27

The new tax regime is the default regime for eligible individual taxpayers for FY 2025-26. It does not change the basic rule that the partner’s share of profit is exempt under Section 10(2A).

The new regime mainly affects the taxation of the partner’s taxable income, such as:

• Remuneration
• Interest
• Commission
• Salary from another employer
• Rental income
• Capital gains and other taxable income

For FY 2025-26, the revised new-regime slabs provide a nil rate up to ₹4,00,000, followed by progressive slabs up to the maximum rate of 30% above ₹24,00,000. A resident individual may also qualify for the enhanced Section 87A rebate where the conditions are satisfied.

The partner must separately evaluate deductions and exemptions because several deductions available under the old regime are restricted under the new regime.

Form 10-IEA for business-income taxpayers

An individual with business or professional income who wants to opt out of the new tax regime must comply with the prescribed requirements, including filing Form 10-IEA within the applicable time.

This is relevant to a partner whose remuneration or interest from the firm is taxable under Section 28(v), because that income is treated as business income. The choice of regime should be made after considering:

• Taxable remuneration and interest
• Deductions under Chapter VI-A
• Housing loan interest, where applicable
• Other income
• The conditions for switching regimes in future years

A partner who reports only exempt share of profit and has no business income may have a different regime-selection position from a partner who receives taxable remuneration or interest. The ITR utility and current instructions should be followed for the relevant facts.

Documents required for ITR filing by a partnership firm partner

Keep the following documents ready:

1. Partnership deed or LLP agreement
2. Profit-sharing ratio confirmation
3. Partner capital account
4. Profit and loss appropriation statement
5. Certificate or statement from the firm showing:
   • Share of profit
   • Remuneration
   • Interest
   • Commission or bonus
6. Form 16A or TDS certificate issued by the firm
7. Form 26AS and AIS
8. Bank statements
9. Details of other income and investments
10. Details of advance tax and self-assessment tax payments

A written statement from the firm is particularly useful where the firm credits remuneration and interest at year-end rather than paying them monthly.

Common mistakes while filing ITR-3 as a partner

Avoid these errors:

• Reporting the exempt share of profit as taxable business income
• Reporting partner remuneration under the head “Salaries”
• Reporting interest from the firm only under “Income from other sources”
• Failing to disclose exempt share of profit
• Claiming TDS that is not reflected in Form 26AS or AIS
• Using the firm’s gross profit instead of the partner’s profit-sharing amount
• Ignoring Section 194T TDS from 1 April 2025
• Entering a wrong PAN or profit-sharing ratio
• Reporting drawings as taxable income
• Selecting ITR-2 despite having taxable business income under Section 28(v)

Practical reporting example in ITR-3

Assume Partner B receives the following from a firm during FY 2025-26:

• Share of profit: ₹10,00,000
• Remuneration: ₹7,20,000
• Interest: ₹1,00,000
• TDS under Section 194T: ₹82,000

Partner B should generally:

1. Enter the firm’s details and profit-sharing information in Schedule IF.
2. Report ₹7,20,000 remuneration as business income under Section 28(v).
3. Report ₹1,00,000 interest as business income under Section 28(v).
4. Disclose ₹10,00,000 as exempt share of profit under Section 10(2A).
5. Claim ₹82,000 TDS after matching it with Form 26AS or AIS.
6. Include other income, deductions and tax payments wherever applicable.
7. Select the tax regime after considering the rules applicable to business-income taxpayers.

The ₹10,00,000 exempt share does not form part of taxable total income, but its disclosure supports the explanation of the partner’s capital balance and bank transactions.

Frequently asked questions

Is a partner’s share of profit taxable in ITR?

No. The partner’s share of profit from a partnership firm is generally exempt under Section 10(2A). It should still be disclosed as exempt income.

Is partner salary taxable?

Yes. Salary or remuneration received by a partner is taxable as business income under Section 28(v), not as salary income.

Is interest from a partnership firm taxable?

Yes. Interest received by a partner is generally taxable under Section 28(v), subject to the applicable terms of the partnership agreement.

Which ITR form is required for a partner?

A partner receiving taxable remuneration, commission, bonus or interest will generally file ITR-3. A person receiving only exempt profit share may qualify for ITR-2 if all other conditions are met.

Does Section 194T apply to profit share?

Generally, no. Section 194T covers salary, remuneration, commission, bonus and interest paid or credited to a partner. It does not generally cover the exempt share of profit.

Summary

For taxation of a partnership firm partner’s share of profit in AY 2026-27, the central rule is simple: the share of profit is generally exempt under Section 10(2A), while remuneration, bonus, commission and interest are taxable under Section 28(v). Partners receiving taxable payments should generally use ITR-3, report the firm details in Schedule IF, disclose the exempt profit share in Schedule EI and reconcile Section 194T TDS with Form 26AS and AIS. Correct reporting is essential for the income tax return for a partner of a partnership firm for AY 2026-27, especially where the partner receives both remuneration and share of profit.