The ITR-5 AY 2026-27 covers every non-individual, non-company business entity in the Indian tax system, including partnership firms, Limited Liability Partnerships (LLPs), Association of Persons (AOPs), Body of Individuals (BOIs), local authorities, cooperative societies, and artificial juridical persons. If you run a chartered firm, a digital agency LLP, a joint venture AOP, or a housing society, this is exactly your form.
Unlike the individual ITR forms, ITR-5 carries different tax rates, partner remuneration rules, and audit thresholds that shape how the entity itself is taxed and how money flows to partners. Get the structure right at the firm level, and the partner-level tax filings simply fall into place.
Who Must File ITR-5 for AY 2026-27
ITR-5 is mandatory for the following entities filing a return of income:
- Partnership firms registered under the Indian Partnership Act, 1932.
- Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008.
- Association of Persons (AOP), including joint ventures, consortiums, club, society, or trust structures that are not exempt.
- Body of Individuals (BOI).
- Local authorities like municipal bodies, cantonment boards, port trusts (unless specifically exempt).
- Cooperative societies, unless filing under specific sectoral provisions.
- Artificial juridical persons.
- Business trusts, investment funds (Category I and II AIFs), and estates of deceased / insolvent persons.
You cannot use ITR-5 if you are:
- An individual or HUF (file ITR-1, 2, 3, or 4).
- A company (file ITR-6).
- A trust or institution claiming exemption under Section 11 (file ITR-7).
- A political party (file ITR-7).
Partnership Firm Taxation: How the Money Flows
The defining feature of ITR-5 for firms and LLPs is the two-stage tax structure:
- At the firm level: The firm’s taxable profit (after allowable partner remuneration and interest) is taxed at a flat rate.
- At the partner level: Partners do not pay tax again on the share of profit they receive (that is exempt under Section 10(2A)), but they do pay tax on the remuneration and interest they receive from the firm.
This is exactly why the firm’s choice of how much to pay partners as remuneration versus how much to retain as firm profit directly shifts where the tax incidence lands.
Firm-Level Tax Rates AY 2026-27
| Entity | Tax rate | Surcharge |
|---|---|---|
| Partnership firm / LLP | 30% | 12% if total income > ₹1 crore |
| AOP / BOI where all members are companies | 30% | As per surcharge slabs |
| AOP / BOI where at least one non-company member exists | 30% or member’s slab | Complex; see rules |
| Co-operative society | Slab (10%, 20%, 30%) | 7% or 12% as applicable |
| Co-operative society opting for Section 115BAD | 22% | 10% |
A 4% Health and Education Cess applies on the tax plus surcharge for every entity above.
Section 40(b): Partner Remuneration Limits
Partner remuneration paid by a firm or LLP is deductible from the firm’s income, but only within Section 40(b) limits:
| Stage of book profit | Maximum allowable remuneration |
|---|---|
| Book profit up to ₹6 lakh | ₹3 lakh or 90% of book profit, whichever is higher |
| Book profit above ₹6 lakh | 90% of the first ₹6 lakh (₹5.4 lakh) + 60% of the book profit above ₹6 lakh |
Note: Finance Act 2024 revised these limits effective FY 2024-25 onwards. The earlier slab (₹3 lakh / ₹1.5 lakh threshold) was replaced with the structure above. Example: on a book profit of ₹10 lakh the ceiling is ₹5.4 lakh plus 60% of ₹4 lakh, which is ₹7.8 lakh. Any remuneration paid to partners that exceeds these limits is disallowed at the firm level and directly added back to taxable profit.
Partner Interest Limit
Interest paid by the firm to partners is deductible only up to 12% per annum simple interest under Section 40(b). Anything above is cleanly disallowed.
LLP-Specific Rules
LLPs file ITR-5 but face several unique requirements:
- MAT under Section 115JC (Alternate Minimum Tax): An LLP that claims specified deductions (Section 10AA SEZ profits, Section 35AD, or the profit-linked Chapter VI-A deductions) pays AMT at 18.5% (plus surcharge and cess) on adjusted total income, even if the regular tax computation yields a lower number. An LLP claiming none of these deductions has no AMT, and the ₹20 lakh threshold exemption applies only to individuals, HUFs and AOPs, not to LLPs. The differential can be carried forward as AMT credit for 15 years.
- No Section 44AD presumptive scheme. LLPs are explicitly excluded from 44AD. Only partnership firms (under the Partnership Act, 1932) qualify, not LLPs.
- Audit thresholds same as partnership firms: Turnover above ₹1 crore (₹10 crore if 95% digital) for business; ₹50 lakh for profession.
- Mandatory filing of LLP Form 8 (Statement of Account and Solvency) and Form 11 (Annual Return) with the MCA, which is entirely separate from ITR-5 filing.
ITR-5 Key Schedules
| Schedule | What it captures |
|---|---|
| Schedule HP | House property income (if firm holds property) |
| Schedule BP | Business profit computation |
| Schedule DPM / DOA | Depreciation under Income Tax Act blocks |
| Schedule CG | Capital gains across asset classes |
| Schedule OS | Other sources income |
| Schedule CFL | Carry-forward of losses |
| Schedule VIA | Deductions (limited applicability for firms) |
| Schedule MAT / AMT | Minimum Alternate Tax computation (LLPs and certain entities) |
| Schedule TDS / TCS | Tax credits |
| Schedule SI | Special income at flat rates |
| Schedule FA | Foreign assets (if any) |
| Schedule IF | Information about firm partners (share, remuneration, interest) |
| Schedule GST | GSTIN-wise turnover reconciliation |
| Schedule 80G / 80GGA | Donation-related deductions |
Schedule IF: The Partner Disclosure
Schedule IF requires disclosure of every partner with their PAN, share percentage, remuneration paid, interest paid, and capital contribution. The partners then claim only the remuneration and interest as income in their individual ITRs, because the share of profit is exempt under Section 10(2A).
Missing or inconsistent Schedule IF data is one of the most common reasons for ITR-5 defective return notices, particularly for newly-admitted or retired partners during the year.
ITR-5 Filing Deadline AY 2026-27
| Category | Deadline |
|---|---|
| Non-audit ITR-5 (firm / LLP) | 31 July 2026 |
| Audit cases (Section 44AB applicable) | 31 October 2026 |
| Tax audit report (Form 3CA-3CD or 3CB-3CD) | 30 September 2026 |
| Transfer pricing cases | 30 November 2026 |
| Belated return | 31 December 2026 |
| Revised return | 31 March 2027 |
Note: The new August 31 extension applies only to ITR-3 and ITR-4, not to ITR-5. Non-audit ITR-5 filers still absolutely face the July 31 deadline.
Audit Triggers for ITR-5 Filers
Firms and LLPs face the same Section 44AB audit triggers as individuals running businesses:
| Trigger | Threshold |
|---|---|
| Business turnover | Above ₹1 crore |
| Business turnover, with ≥ 95% digital receipts and ≥ 95% digital payments | Above ₹10 crore |
| Profession gross receipts | Above ₹50 lakh |
Plus, LLPs face additional audit triggers under the LLP Act, 2008:
- Turnover above ₹40 lakh, OR
- Capital contribution above ₹25 lakh.
This LLP Act audit is separate from the Income Tax Act audit and must be filed with the MCA via LLP Form 8.
Common ITR-5 Mistakes That Trigger Notices
- Partner remuneration exceeding Section 40(b) limits. Auto-disallowed and added back to firm profit. Recompute against current FY 2024-25 limits.
- Interest to partners above 12% simple. Excess interest is predictably disallowed.
- Partnership firm claiming Section 44AD on an LLP return. LLPs cannot opt for 44AD. This is a common error stemming from entity-type confusion.
- Missing or incomplete Schedule IF. Every partner must be fully disclosed with PAN, share, remuneration, and interest.
- GST turnover mismatch with ITR-5 turnover. GSTN data sharing instantly flags variances above 10%.
- MAT / AMT not computed for LLPs above ₹20 lakh adjusted total income. This is a frequent missed calculation that quickly surfaces in scrutiny.
- Cash receipts above ₹2 lakh from a single party. This triggers Section 269ST disallowance and a 100% penalty.
- Filing without a digital signature for tax-audit-applicable entities. Audit cases mandatorily require a DSC.
Partner-Level Filing After ITR-5
Each partner files their own ITR (typically ITR-3 if the partner is an individual) and reports:
- Share of profit: show under “Exempt Income” referencing Section 10(2A).
- Remuneration received: show as business income.
- Interest received: show as business income.
The share-of-profit exemption is automatic at the partner level only if the firm itself paid tax on the corresponding profit, i.e., the firm filed its ITR-5 and successfully discharged its tax liability. A defective ITR-5 can therefore retroactively make partner-level filings vulnerable.
How Reconscribe Helps ITR-5 Filers
ITR-5 reconciliation involves syncing firm books, partner ledgers, GST returns, and AIS data, across multiple bank accounts and possibly multiple states. Reconscribe ingests Tally, Zoho, and QuickBooks exports, GSTN data, and bank statements, then smoothly outputs structured inputs for Schedule P&L, BS, BP, and IF, complete with partner remuneration limit checks and Section 40(b) flagging built right in.
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Frequently Asked Questions
Can a partnership firm opt for Section 44AD presumptive scheme?
Yes, partnership firms (registered under the Indian Partnership Act, 1932) can absolutely opt for 44AD and file ITR-4. LLPs cannot. If your firm uses 44AD, be sure to file ITR-4 instead of ITR-5.
Is partner share of profit taxable in the partner's hands?
No. Section 10(2A) exempts the partner's share of profit from a firm that has already paid tax on its profits. The partner only pays tax on remuneration and interest received.
What if the firm declares a loss?
Losses are computed strictly at the firm level and carried forward in the firm's ITR-5. They cannot be passed through to partners. Carry-forward is generally allowed for 8 years against future business profit.
Are LLPs subject to MAT?
LLPs are subject to Alternate Minimum Tax (AMT) under Section 115JC, not regular MAT under Section 115JB. AMT applies at 18.5% on adjusted total income above ₹20 lakh.
Can two LLPs form a partnership?
No. A partnership under the Indian Partnership Act, 1932 specifically requires individuals (or HUFs through their karta in some cases) as partners. LLPs can form a separate LLP through a deed and registration with the MCA, but not a traditional partnership firm.
Related guides:
- 🏠 Master index: ITR Forms AY 2026-27
- 🔴 ITR-6: For Companies
- 🟠 ITR-3: For Individual Partners Filing Their Own Return
- 🟣 ITR-4 Sugam: For Partnership Firms Opting Presumptive
Last reviewed: May 26, 2026 | CBDT Notification: 45/2026
Official reference: Income-tax Act, 2025 (as amended by the Finance Act, 2026), Income Tax Department.
Official source: Always confirm the official ITR-5 form and instructions at incometax.gov.in.