Partnership Firm Income in ITR-3: AY 2026-27 Guide

ITAI Blogger

September 10, 2026

If you are a partner in a partnership firm, you may receive remuneration, salary, commission, bonus, interest on capital and a share of profit. These amounts do not receive the same tax treatment. For declaration of income from a partnership firm as a partner in AY 2026-27, you must separate taxable partner remuneration and interest from the exempt share of profit and report them in the correct schedules of ITR-3.

This guide explains the tax treatment of partnership firm income for an individual partner for FY 2025-26 and AY 2026-27, including Section 10(2A), Section 28(v), Schedule IF, Schedule EI, TDS under Section 194T and the new tax regime.

Income from Partnership Firm as a Partner in ITR-3 AY 2026-27

An individual partner generally files ITR-3 when the partner receives taxable remuneration, salary, bonus, commission or interest from the firm. These receipts are treated as business or professional income, not salary income.

The main categories are:

Amount received from firm	Tax treatment for individual partner	ITR-3 reporting
Share of profit	Exempt under Section 10(2A)	Schedule IF and Schedule EI
Partner remuneration or salary	Taxable under Section 28(v)	Business income section and Schedule IF
Commission, bonus or partner’s fee	Taxable under Section 28(v)	Business income section and Schedule IF
Interest on capital or loan	Taxable under Section 28(v), subject to Section 40(b) limits	Business income section and Schedule IF
Drawings or capital withdrawal	Not income by itself	No income reporting

The Income Tax Department’s return guidance should be checked while selecting the applicable return form.

The share of profit received by a partner from a partnership firm is exempt under Section 10(2A). This exemption applies because the firm pays income tax on its taxable profits before distributing the post-tax profit among its partners.

For example:

Firm’s profit after tax: ₹20,00,000
Partner’s profit-sharing ratio: 25%
Share received by partner: ₹5,00,000

The partner does not pay income tax again on the ₹5,00,000 share of profit. However, the amount should still be disclosed as exempt income in the return.

For reporting exempt share of partnership firm profit in Schedule EI, enter the amount under the field relating to income exempt under Section 10 or the specific field for the partner’s share of profit from a firm, as available in the AY 2026-27 ITR-3 utility.

You should also provide the firm’s details in Schedule IF, including:

Name of the partnership firm
Permanent Account Number (PAN) of the firm
Address of the firm
Firm’s profit-sharing details
Your share of profit
Remuneration, interest or other income received from the firm

Do not enter the exempt share as taxable business income in Schedule BP.

Tax Treatment of Partner Salary, Remuneration and Interest on Capital

Section 28(v) partner remuneration and interest taxation

Partner remuneration, salary, bonus, commission and interest received from the firm are taxable under Section 28(v) of the Income-tax Act. They are generally reported as profits and gains of business or profession in the partner’s ITR-3.

This treatment applies even when the partnership deed describes the payment as:

Salary to partner
Monthly remuneration
Working partner’s payment
Interest on capital
Interest on loan or current account
Commission or bonus

The important distinction is that a partner is not treated as an employee of the partnership firm for this purpose. Therefore, partner remuneration is not normally reported under the “Salary” head.

Conditions for taxability and deduction in the firm

For the partnership firm to claim a deduction, the payment must generally satisfy Section 40(b), including:

The partnership deed must authorise the payment.
The payment must comply with the terms of the deed.
Remuneration must be paid to a working partner.
Interest must not exceed the prescribed rate.
Remuneration must remain within the statutory limits linked to book profit.

For FY 2025-26, the maximum deductible interest generally remains 12% simple interest per annum. The remuneration ceiling for working partners is:

On the first ₹6,00,000 of book profit, or in case of loss: ₹3,00,000 or 90% of book profit, whichever is higher
On the balance of book profit: 60%

These limits apply to the firm’s deduction. They are also relevant when determining the amount taxable under Section 28(v). Maintain the firm’s computation, partnership deed and capital account to support the figures reported in the partner’s return.

How to Report Partner Remuneration in ITR-3

Follow these steps for how to report partner remuneration in ITR-3 for AY 2026-27:

Step 1: Select ITR-3

Select ITR-3 if you have taxable business income from the partnership firm, such as:

Remuneration
Interest
Commission
Bonus
Other payments taxable under Section 28(v)

The Income Tax Department’s ITR-3 resources provide the applicable form and filing instructions.

Step 2: Complete Schedule IF

In Schedule IF, disclose the partnership firm in which you are a partner. Enter the firm’s PAN carefully because the department can match the information with the firm’s return and tax audit records.

Report the following, as applicable:

Share of profit from the firm
Interest received or credited
Salary or remuneration
Bonus or commission
Your percentage share in the firm

Step 3: Report taxable amounts under business income

Enter the taxable remuneration, interest and other Section 28(v) receipts in the business or profession section of ITR-3.

Do not report these amounts under:

Salary income
Income from other sources
Exempt income only

The exact field names may vary in the online or offline utility. Use the field linked to income from partnership firm as a partner or income taxable under Section 28(v).

Enter the partner’s share of profit separately in Schedule EI. This ensures that the return reflects the complete income received from the firm without taxing the exempt share a second time.

Step 5: Claim TDS credit

Match the TDS appearing in:

Form 26AS
Annual Information Statement (AIS)
Tax Information Statement (TIS)
TDS certificate issued by the firm

Claim the credit in the relevant TDS schedule of ITR-3. A mismatch between the firm’s TDS return and your ITR can lead to an outstanding demand or defective return communication.

TDS on Partner Payments Under Section 194T

Section 194T applies to payments made by a partnership firm to its partners. From 1 April 2025, the firm must generally deduct TDS at 10% on salary, remuneration, commission, bonus or interest paid or credited to a partner when the aggregate amount exceeds ₹20,000 in a financial year.

This is relevant for AY 2026-27, which covers FY 2025-26.

Important points include:

TDS applies to eligible payments made or credited to the partner.
The ₹20,000 threshold applies to the aggregate of covered payments during the financial year.
TDS is not a final tax. It is available as credit against the partner’s final tax liability.
The partner should verify the TDS credit in Form 26AS and AIS.
The exempt share of profit under Section 10(2A) is not partner remuneration and is not taxable as business income.

The firm should also report the TDS correctly in its quarterly TDS statement so that the credit appears against the partner’s PAN.

Partner Income Tax Calculation Under New Tax Regime AY 2026-27

The new tax regime is the default regime for AY 2026-27. For FY 2025-26, the revised slab structure for an individual generally applies as follows:

Total income	Tax rate
Up to ₹4,00,000	Nil
₹4,00,001 to ₹8,00,000	5%
₹8,00,001 to ₹12,00,000	10%
₹12,00,001 to ₹16,00,000	15%
₹16,00,001 to ₹20,00,000	20%
₹20,00,001 to ₹24,00,000	25%
Above ₹24,00,000	30%

A resident individual may also be eligible for rebate under Section 87A where the conditions are satisfied and total income does not exceed ₹12,00,000. Marginal relief may apply in specified cases where income slightly exceeds the rebate threshold. Income taxable at special rates, such as certain capital gains, is considered separately.

Example of partner income calculation

Assume an individual partner receives the following during FY 2025-26:

Remuneration from firm: ₹8,00,000
Interest on capital: ₹1,20,000
Share of firm profit: ₹5,00,000
Other taxable income: Nil

The tax treatment is:

Taxable business income: ₹9,20,000
Exempt share of profit under Section 10(2A): ₹5,00,000
Amount reported in Schedule EI: ₹5,00,000
Amount considered for normal tax calculation: ₹9,20,000

Under the revised new-regime slabs, the tax before rebate on ₹9,20,000 is calculated on the relevant slab portions. If the taxpayer is a resident individual and satisfies Section 87A conditions, the rebate may reduce the final tax to nil. The taxpayer must still report the income correctly and claim any TDS deducted by the firm.

New Tax Regime or Old Tax Regime for a Partner?

Partners receiving remuneration or interest have business income. This affects the procedure for choosing the tax regime.

Under the new tax regime:

Most deductions and exemptions are not available.
Certain specified deductions continue to apply.
Investment-linked deductions such as Section 80C generally cannot be claimed.
The new regime applies by default if the taxpayer does not validly opt out.

A partner with business or professional income who wants to use the old tax regime generally needs to file Form 10-IEA within the prescribed time. The choice has additional restrictions for taxpayers with business or professional income, so the form and filing position should be reviewed before submitting the return. The official Income Tax e-filing portal provides the current form and filing workflow.

Common Mistakes While Declaring Partnership Firm Income

Avoid these errors when declaring partnership firm income as a partner in AY 2026-27:

Reporting remuneration under the Salary head
Taxing the exempt share of profit again
Failing to disclose the partnership firm in Schedule IF
Reporting the full amount credited without checking Section 40(b) limits
Claiming TDS that does not appear against the correct PAN
Ignoring interest credited to the partner’s capital or current account
Treating drawings as taxable income
Entering the firm’s PAN incorrectly
Using ITR-2 despite having taxable remuneration or interest from the firm
Failing to reconcile the firm’s financial statements with the partner’s capital account

Keep these records:

Partnership deed and supplementary deeds
Profit and loss account of the firm
Partner’s capital and current account
Remuneration and interest calculation
Form 16A or TDS certificate, where applicable
Form 26AS and AIS
Firm’s computation of income and Section 40(b) limits

Frequently Asked Questions

Is partner salary taxable in the hands of an individual partner?

Yes. Partner salary or remuneration is generally taxable as business income under Section 28(v), subject to the amount allowable under Section 40(b).

Is interest on capital taxable for a partner?

Yes. Interest on capital or a partner’s loan is generally taxable under Section 28(v). The partnership firm’s deduction is normally restricted to the prescribed rate and other Section 40(b) conditions.

No. The partner’s share of profit is exempt under Section 10(2A). It should nevertheless be disclosed in Schedule EI and the firm should be reported in Schedule IF.

Can a partner file ITR-2?

If the partner receives taxable remuneration, interest, commission or bonus from the firm, ITR-3 is generally appropriate because the income is taxable under the business or profession head. If the partner has only an exempt profit share and no business income, the applicable form depends on the taxpayer’s complete income profile.

No. The exempt share of profit is different from remuneration, interest, commission or bonus. TDS under Section 194T applies to specified payments to partners, not to the exempt profit share.

Final Checklist for AY 2026-27

Before filing your return, confirm that:

You selected ITR-3 where taxable partner income exists.
You disclosed the firm in Schedule IF.
You reported remuneration, interest, commission and bonus as business income.
You reported the share of profit as exempt income in Schedule EI.
Your reported amount agrees with the firm’s books and your capital account.
You matched TDS with Form 26AS and AIS.
You checked the new-regime tax calculation and Section 87A eligibility.
You filed Form 10-IEA if you are eligible and intend to opt for the old regime.
You retained the partnership deed and Section 40(b) working papers.

For declaration of income from partnership firm as a partner in AY 2026-27, remember the central rule: taxable remuneration and interest are business income under Section 28(v), while the share of partnership firm profit is exempt under Section 10(2A). Correct disclosure in Schedule IF, Schedule EI and the business income section of ITR-3 will help ensure accurate taxation of partnership firm profit share for an individual partner.

This content is AI Generated, use for reference only.