Entity guide · FY 2026-27 · India

Partnership Firm (Indian Partnership Act, 1932)

Traditional two-or-more-partner structure bound by a written deed. Indian Partnership Act, 1932 — registration under Section 58 with the Registrar of Firms.

Min: 2 membersMax: 50Unlimited liabilityNot separate entityDPIIT: Eligible

Headline facts

Incorporation cost

₹5,000–20,000

Typical timeline

7–20 working days (State-dependent)

Tax regime (FY 2026-27)

Flat 30% + 12% surcharge (above ₹1 Cr) + 4% cess. Partner remuneration deductible under Section 40(b) — revised limits from FY 2025-26.

FDI eligible

Yes with conditions (approval route; automatic for NRI non-repatriation only)

Typical revenue band

₹30 lakh–₹5 crore

Audit requirement

Tax audit under Section 44AB at ₹1 Cr turnover (₹10 Cr digital) or ₹75L professional receipts. No statutory audit under the Partnership Act.

Who Partnership is best for

A two-to-four partner professional firm wanting remuneration deductibility without LLP's annual filings.
Family members pooling capital for a mid-sized trading or manufacturing business.
A short-horizon JV between two operators for a specific project.
Founders testing partnership dynamics before migrating to LLP or Pvt Ltd.

Who should NOT choose Partnership

Teams planning priced equity rounds — investors will not subscribe to partnership capital.
Businesses in high-liability or regulated sectors.
Partners who are not family or long-standing peers — joint-and-several liability makes stranger-partnerships risky.

Pros & Cons

Pros

Registration typically in two to three weeks — often faster than LLP or company.
Partner remuneration and capital interest deductible under Section 40(b), reducing effective tax vs a company.
No ROC filings or board meetings — compliance calendar is essentially income-tax and GST.
DPIIT-eligible, unlocking Section 80-IAC and Startup India benefits.
Bespoke profit-sharing, tie-breakers, and exit clauses by deed.
Lower setup and running cost than LLP or Pvt Ltd for small professional teams.

Cons

Partners jointly and severally liable without limit — one partner's act can expose every other partner's personal assets.
Unregistered firms cannot sue third parties under Section 69 — a real litigation trap.
No perpetual succession — death, insolvency, or retirement dissolves the firm unless the deed provides otherwise.
FDI restricted; institutional equity not raisable at scale.
Transferring an interest requires every other partner's consent — exits are clunky.
Banks and NBFCs typically lend at worse terms than to LLPs or companies.

Annual compliance

Filing forms: None to ROC. ITR-5, GST returns, TDS returns, Form A amendments with Registrar of Firms on change of partners.

ITR-5 by 31 Oct (if audited) or 31 July, tax audit under 44AB if triggered, 12 monthly GSTRs (or QRMP), GSTR-9 above ₹2 Cr, quarterly TDS, and advance tax. Any change in partners or terms requires a supplementary deed and Form A filing. Books under Section 44AA are mandatory.

Generate your FY 2026-27 compliance calendar for Partnership

Conversion pathways

LLP (Section 55 + Second Schedule of LLP Act; tax-neutral under Section 47(xiii)), Pvt Ltd (Section 366 Companies Act; tax-neutral under 47(xiii) with conditions)

Our team's take

The recurring pattern is a deed drafted at the outset that nobody revisits for a decade while the underlying reality changes — one partner reduces involvement, another draws more, a third brings in capital. When a scrutiny notice arrives or a partner exits, the mismatch between deed and reality becomes a reconstruction nightmare. Treat the deed as a living document — annual review, supplementary deeds on material change, before the change takes practical effect.

— CA Siddharth A Shah & Associates · FRN 157167W

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Disclaimer

This tool provides general informational guidance on Indian business entity structures for FY 2026-27 and does not constitute professional advice, an engagement with CA Siddharth A Shah & Associates, or a substitute for personalised consultation with a qualified Chartered Accountant. Recommendations are based on the inputs you provide and may not address your complete legal, tax, or regulatory position.