Assessment as a Firm
[Section-325 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 325(1) of Income Tax Act 2025
325(1) A firm shall be assessed as a firm for the purposes of this Act, if—
- (a) the partnership is evidenced by an instrument; and
- b) the individual shares of the partners are specified in that instrument.
Section 325(2) of Income Tax Act 2025
325(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall accompany the return of income of the firm of the tax year in respect of which assessment as a firm is first sought.
Section 325(3) of Income Tax Act 2025
325(3) For the purposes of sub-section (2), the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the firm, by all persons (not being minors), who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.
Section 325(4) of Income Tax Act 2025
325(4) Where a firm is assessed as such for any tax year, it shall be assessed in the same capacity for every subsequent year, if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought.
Section 325(5) of Income Tax Act 2025
325(5) Where any such change had taken place in the tax year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for such tax year, and all the provisions of this section shall apply accordingly.
Section 325(6) of Income Tax Act 2025
325(6) Irrespective of anything contained in any other provision of this Act, where, in respect of any tax year, there is on the part of a firm any such failure as is mentioned in section 271,—
- (a) the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”; and
- (b) such payment shall not be chargeable to income-tax under section 26(2)(f).
FAQs on Section 325 of Income Tax Act 2025
What conditions must be satisfied for a firm to be assessed as a firm under the Income Tax Act, 2025?
A firm will be assessed as a firm if (a) the partnership is evidenced by an instrument, and (b) the individual shares of the partners are specified in that instrument.
Is submission of the partnership deed required for assessment as a firm?
Yes, a certified copy of the instrument of partnership must accompany the return of income for the tax year in which assessment as a firm is first sought.
Who must certify the copy of the partnership deed?
The copy must be certified in writing by all the partners (not being minors). If the return is filed after the firm is dissolved, it must be certified by all persons who were partners immediately before the dissolution and by the legal representative of any deceased partner.
Will a firm continue to be assessed as such in subsequent years?
Yes, if there is no change in the constitution of the firm or in the partners’ shares as per the original partnership deed, the firm shall be assessed as a firm in subsequent years.
What if there is a change in the constitution of the firm or partner’s shares?
The firm must furnish a certified copy of the revised partnership deed along with the return for the year in which the change occurred. The provisions of Section 325 will then apply accordingly.
What are the consequences if a firm fails to comply with provisions referred to in Section 271?
If a firm commits any default referred to in Section 271, then:
(a) No deduction shall be allowed for any payment of interest, salary, bonus, commission, or remuneration to any partner in computing income under “Profits and gains of business or profession”.
(b) Such payments will not be chargeable to tax in the hands of the partner under Section 26(2)(f).
Can a firm claim deduction for partner’s remuneration if the firm violates Section 271?
No, in such a case, the firm cannot claim any deduction for such payments, and the partner is also not taxed on it under Section 26(2)(f).
Is a minor partner required to certify the partnership deed?
No, only partners who are not minors are required to certify the deed.
When should the certified copy of the revised partnership deed be submitted in case of change?
It should be submitted along with the return of income for the tax year in which the change in the firm’s constitution or partners’ shares occurred.
Does the firm’s status as assessed under Section 325 automatically continue every year?
Yes, it continues automatically unless there is a change in the constitution or profit-sharing ratio of the firm, in which case a revised deed must be submitted.
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