ITR-5 Filing Guide AY 2026-27: Partnership Firms, LLPs, AOPs, and BOIs

What is ITR-5 and who needs to file it for AY 2026-27? ITR-5 is the income tax return form for partnership firms, LLPs, AOPs, BOIs, business trusts, investment funds, and estates of deceased or insolvent persons for AY 2026-27. It requires filing a complete balance sheet, profit and loss account, and Schedule BP to compute taxable income from net book profit.

ITR-5 is not a form most practitioners encounter daily, but errors in it — wrong Schedule BP adjustments, missing partner details, or incorrect audit status — invite scrutiny. This guide covers the complete structure, schedule-by-schedule logic, Section 40(b) computations, and due dates that every firm needs for AY 2026-27.

Who Must File ITR-5?

ITR-5 is mandatory for the following entities:

• Registered and unregistered partnership firms under the Indian Partnership Act, 1932
• Limited Liability Partnerships (LLPs) under the LLP Act, 2008
• Association of Persons (AOPs) and Body of Individuals (BOIs)
• Artificial juridical persons not covered by any other form
• Investment funds and business trusts
• Estate of a deceased person and estate of an insolvent

Entities that cannot use ITR-5:

• Individuals and HUFs (use ITR-1 through ITR-4)
• Companies (use ITR-6)
• Charitable or religious trusts, political parties, scientific research institutions (use ITR-7)

A common mistake is when a designated partner files ITR-5 for themselves personally. Partners file their individual returns using ITR-3 for AY 2026-27. The firm files ITR-5. These are two separate compliance obligations.

ITR-5 vs ITR-3: Which Form for Partners, Which for the Firm?

The firm and its partners file returns independently. Here is how income flows:

1. The firm computes its total income, pays tax at 30% flat rate plus applicable surcharge and Health and Education Cess at 4%, and files ITR-5.
2. Each partner includes their share of firm profit in their ITR-3. That share is exempt in the partner's hands under Section 10(2A), so it does not result in double taxation.
3. Remuneration and interest paid to partners by the firm are deductible for the firm (subject to Section 40(b) limits) and taxable in the partner's hands as business income.

This separation is critical: the firm's ITR-5 must match the profit-sharing ratios and remuneration figures shown in the partnership deed. Any mismatch between the firm's Schedule PA and what partners report in their ITR-3 creates a reconciliation risk during processing.

ITR-5 Structure: Key Schedules Explained

ITR-5 for AY 2026-27 is divided into several parts. Each part serves a specific purpose:

Part A-GEN

General information: legal status (firm, LLP, AOP, etc.), business code, number of partners or members, whether accounts are audited, auditor details, and UDIN if applicable.

Part A-BS (Balance Sheet as at March 31, 2026)

Complete balance sheet as on the last day of the financial year. Capital accounts of each partner are shown separately. Fixed assets, current assets, loans, and liabilities must reconcile with the audited accounts.

Part A-Manufacturing Account, Trading Account, and Part A-P&L

These schedules capture the complete profit and loss account. Gross profit, indirect expenses, depreciation charged in books, and net profit before tax flow into Schedule BP.

Schedule BP

The heart of ITR-5. See the dedicated section below.

Schedule DPM and Schedule DOA

Depreciation computation on plant and machinery (DPM) and other assets (DOA) using Income Tax Act rates (not Companies Act rates). Written-down values under the Act often differ from book values, creating depreciation differences that feed into Schedule BP.

Schedule PA (Partner/Member Details)

Name, PAN, profit-sharing ratio, capital contribution, remuneration paid, and interest on capital for each partner. This schedule is cross-verified against partner ITR-3 filings.

Schedule AL

Required only if total income exceeds ₹50 lakh. Discloses assets (immovable property, financial assets, vehicles, etc.) and liabilities of the firm.

Schedule BP: Computing Taxable Income from Net Profit

Schedule BP bridges the gap between book profit (as per P&L) and taxable income (as per the Income Tax Act). The reconciliation works as follows:

Start with: Net profit as per P&L account

Add back (inadmissible expenses):

• Amounts disallowed under Section 40(a): TDS not deducted or not deposited on payments to residents and non-residents
• Amounts disallowed under Section 40(b): partner remuneration exceeding the prescribed limits, or remuneration not authorised by the partnership deed
• Amounts disallowed under Section 40A(2): excessive payments to related parties
• Section 40A(3): cash payments exceeding ₹10,000 in a single day to a single person
• Depreciation as per books (add back entire book depreciation)

Deduct:

• Depreciation as per Income Tax Act (from Schedule DPM/DOA)
• Any income credited to P&L that is taxable under another head (e.g., capital gains, house property income) — these are shifted to respective schedules

Add:

• Income under Section 28(ii)/(iii)/(iv): compensation for termination of business arrangements, export incentives, and value of benefits received in the course of business

The result is income from business/profession under the Act. Firms carrying forward unabsorbed depreciation or business losses from prior years can set those off here, subject to continuity and other conditions.

Partner Details in Schedule PA

Schedule PA requires the following for each partner:

Interest on partner capital exceeding 12% per annum is disallowed in the firm's Schedule BP. If the deed authorises 15%, the excess 3% is added back as inadmissible.

Tax Audit Under Section 44AB for Firms

Audit under Section 44AB applies to firms in the following situations:

• Business turnover exceeds ₹1 crore in the financial year 2025-26
• Professional receipts exceed ₹50 lakh in the financial year 2025-26
• Digital transactions threshold: if 95% or more of receipts and payments are digital, the turnover limit is raised to ₹10 crore before audit is triggered

When audit is required, the firm must obtain a Tax Audit Report in Form 3CD from a Chartered Accountant before filing ITR-5. The UDIN generated for Form 3CD must be entered in Part A-GEN.

For audit-related queries on your firm's threshold, the Tax Garden support team can help assess whether audit is applicable based on your turnover composition.

Remuneration to Partners: Section 40(b) Deduction Limits

Section 40(b) is the most frequently contested provision in firm taxation. Only remuneration paid to working partners under a written partnership deed is deductible. The limits for AY 2026-27:

Book profit for this purpose is computed as per the Explanation to Section 40(b): net profit as shown in P&L, increased by remuneration paid to partners (which is added back before applying the limits), and adjusted for specific items.

Example: A firm has book profit of ₹10 lakh after charging ₹5 lakh as partner remuneration.

• Book profit before remuneration = ₹10 lakh + ₹5 lakh = ₹15 lakh
• On first ₹3 lakh: 90% = ₹2.7 lakh
• On balance ₹12 lakh: 60% = ₹7.2 lakh
• Maximum deductible = ₹9.9 lakh
• Remuneration paid = ₹5 lakh (within limit, fully deductible)

If remuneration paid exceeds the limit, the excess is added back in Schedule BP.

LLP vs Partnership Firm: Compliance Differences

Both LLPs and partnership firms pay tax at 30% flat plus surcharge and cess, and both file ITR-5. However, there are structural differences:

• Remuneration: LLPs pay remuneration to "designated partners." The deduction limits under Section 40(b) apply identically to LLPs.
• Partners' liability: LLP partners have limited liability; partnership firm partners have unlimited liability. This does not affect tax computation but matters for Schedule PA disclosures.
• Audit threshold: Same Section 44AB turnover thresholds apply to LLPs.
• Annual filing with MCA: LLPs must additionally file LLP Form 8 (Statement of Account and Solvency) and Form 11 (Annual Return) with the Ministry of Corporate Affairs, which partnership firms are not required to do.

For firms evaluating whether to convert to an LLP, see Tax Garden's pricing for firm compliance services to understand the combined annual compliance cost.

Due Dates and Penalties for Late ITR-5 Filing

Consequences of late filing:

• Belated return: A belated ITR-5 can be filed up to December 31, 2026. Losses (except unabsorbed depreciation) cannot be carried forward if the return is filed after the due date.
• Late filing fee under Section 234F: ₹5,000 if filed after the due date but before December 31, 2026; ₹10,000 if filed after December 31, 2026. The fee is capped at ₹1,000 if total income does not exceed ₹5 lakh.
• Interest under Section 234A: 1% per month on tax due if the return is filed after the due date.
• Penalty for audit non-compliance under Section 271B: 0.5% of turnover, subject to a maximum of ₹1.5 lakh, if audit is required but not conducted before filing.

Frequently Asked Questions

Does a partnership firm with no income need to file ITR-5?

Yes. A partnership firm registered under the Indian Partnership Act must file ITR-5 even if it has no income or turnover during the year. Nil filing is mandatory to maintain compliance status and to avoid default notices under Section 142(1). The return is filed with zero income and the balance sheet shows only capital balances.

Can an LLP file ITR-5 on the same due dates as a partnership firm?

Yes. LLPs use ITR-5 and the same due dates apply: July 31, 2026 for non-audit LLPs and October 31, 2026 for LLPs whose accounts must be audited under Section 44AB. LLPs also have MCA annual filing obligations (Form 8 and Form 11) with separate due dates that run independently of the income tax return.

What is the tax rate for a partnership firm in AY 2026-27?

Partnership firms and LLPs are taxed at a flat rate of 30% on total income. Surcharge applies at 12% if total income exceeds ₹1 crore. Health and Education Cess is 4% on income tax plus surcharge. There is no basic exemption limit or slab benefit available to firms — the 30% rate applies from the first rupee of taxable income.

If the firm's audit is pending, can I file ITR-5 without the audit report?

No. If the firm's turnover triggers mandatory audit under Section 44AB, the Tax Audit Report in Form 3CD must be completed by the Chartered Accountant and the UDIN must be generated before ITR-5 is filed. Filing without the audit report when audit is applicable is treated as non-compliance under Section 271B. The audit due date is September 30, 2026, which precedes the October 31, 2026 ITR filing deadline.

This guide is based on ITR-5 notified by CBDT for Assessment Year 2026-27, the Income Tax Act provisions as applicable for Financial Year 2025-26, and Section 40(b) limits as amended. Tax law is subject to circulars, notifications, and judicial pronouncements. Verify the current form and instructions at incometax.gov.in before filing. For firm-specific computation of Schedule BP or Section 40(b) limits, consult a qualified Chartered Accountant.