ITR-5 Return Filing for Firms, LLPs, AOPs and BOIs
Partner remuneration under Section 40(b), profit allocation, alternate minimum tax, and audit coordination for partnership firms, LLPs, and associations across India
What Is ITR-5?
ITR-5 is the return for entities that are neither individuals nor companies — the partnership firm, the limited liability partnership, the association of persons and the body of individuals. Its defining complication is that the entity is taxed and its partners are taxed, and what the entity deducts determines what the partners declare. Get the Section 40(b) computation wrong and two sets of returns are wrong together.
N D Savla & Associates prepares ITR-5 returns for firms, LLPs, AOPs and BOIs across Pune and India. The work concentrates on partner remuneration and interest within the statutory limits, correct profit allocation, and consistency with what each partner reports in their own ITR-3. Where audit applies, we handle the income tax audit alongside.
Who Files ITR-5?
ITR-5 is filed by partnership firms, limited liability partnerships, associations of persons, bodies of individuals, artificial juridical persons, estates of a deceased or insolvent person, business trusts and investment funds.
It is not used by individuals or HUFs (who file ITR-1 to ITR-4), nor by companies (which file ITR-6), nor by trusts and institutions claiming exemption under Sections 11 and 12 (which file ITR-7). An LLP, despite its name suggesting a hybrid, files ITR-5 and is taxed as a firm rather than as a company.
What Can a Firm Deduct for Its Partners? — Section 40(b)
Section 40(b) caps what a firm may deduct, and anything above the cap is disallowed to the firm while remaining taxable in the partner's hands.
| Payment | Deduction Condition | Consequence of Excess |
|---|---|---|
| Partner remuneration | Only to working partners, authorised by the deed, within the 40(b) slab limits on book profit | Excess disallowed to the firm |
| Interest on capital | Authorised by the deed, not exceeding the prescribed rate (currently 12%) | Excess disallowed to the firm |
| Share of profit | Not a deduction — it is the allocation of already-taxed profit | Exempt to the partner under Section 10(2A) |
| Payments to non-working partners | Remuneration not deductible at all | Fully disallowed |
| Retrospective deed changes | Deduction allowed only from the date of the deed | Prior-period claim disallowed |
Which Entities File ITR-5?
Partnership Firms
A registered or unregistered firm is taxed at a flat rate on total income after deducting permissible partner remuneration and interest. The deed governs everything — firms formed without professional drafting frequently discover gaps at assessment. Our partnership firm setup work addresses this at formation.
Limited Liability Partnerships
An LLP is taxed as a firm but carries corporate-style compliance. LLPs are subject to Alternate Minimum Tax (AMT) where adjusted total income exceeds the threshold and regular tax is lower — which frequently catches LLPs claiming substantial deductions. Runs alongside LLP compliance obligations.
AOPs and BOIs
Associations of Persons and Bodies of Individuals are used for joint ventures, housing societies, and co-operative arrangements. Their taxation depends critically on whether shares of members are determinate. Where shares are indeterminate, the AOP is taxed at the maximum marginal rate — materially worse and usually a result of poor documentation.
Business Trusts & Investment Funds
REITs, InvITs, and Category I or II AIFs file ITR-5. These entities operate under pass-through regimes where specified income is taxed in the hands of unit holders rather than the entity. Connects with our AIF application and compliance work.
How Our ITR-5 Filing Process Works
Books Finalisation and Audit Position
Accounts are finalised and we determine whether tax audit under Section 44AB applies on turnover, and separately whether audit under the LLP Act applies — the two thresholds are different and an entity can require one without the other.
Partnership Deed and Authorisation Review
The deed is examined to confirm that partner remuneration and interest are authorised, that the basis of computation is specified, and that any change was documented before the period to which it relates. Deductions unsupported by the deed are disallowed regardless of commercial reasonableness.
Business Income Computation and Disallowances
Profit is computed and adjusted for disallowances — cash payments above the Section 40A(3) limit, statutory dues unpaid before the due date under Section 43B, and amounts on which TDS was deductible but not deducted or deposited.
Section 40(b) Computation
Deductible partner remuneration is computed against the statutory slab limits applied to book profit, and interest on capital against the prescribed rate ceiling. Any excess is added back to firm income while remaining taxable for the partner.
Profit Allocation and Partner Schedule
Profit is allocated among partners in the ratio set by the deed and the partner schedule prepared, showing each partner's share, remuneration and interest. This schedule must agree with what each partner reports in their own ITR-3.
AMT Computation (LLPs)
For LLPs, adjusted total income is computed and AMT tested against regular tax. Where AMT applies, the credit is tracked for set-off in subsequent years when regular tax exceeds AMT.
Tax Computation and Self-Assessment Tax
Final tax at the applicable flat rate, plus surcharge and health and education cess, is computed. Self-assessment tax and advance tax shortfall are determined and settled before filing.
Electronic Filing with Digital Signature
ITR-5 is filed electronically — compulsorily with a digital signature where audit applies. The tax audit report is attached before the return is submitted. Acknowledgement is retained and the return confirmed as processed.
Frequently Asked Questions About ITR-5 Return Filing
Who files ITR-5?
Partnership firms, LLPs, associations of persons (AOPs), bodies of individuals (BOIs), artificial juridical persons, estates of deceased or insolvent persons, business trusts, and investment funds. Not used by individuals, HUFs, or companies.
What is Section 40(b) and why does it matter?
Section 40(b) caps the remuneration and interest a firm can deduct for its partners. Any remuneration or interest above the cap is disallowed to the firm but remains taxable for the partner — creating double taxation on the excess. Remuneration is deductible only if authorised in the partnership deed and paid to working partners within the statutory slab limits.
Does an LLP pay the same tax as a company?
No — an LLP is taxed as a firm at a flat rate (30% plus surcharge and cess), not as a company. Unlike companies, LLPs cannot opt for the concessional regime under Section 115BAA. LLPs are, however, subject to Alternate Minimum Tax (AMT), which operates similarly to MAT for companies.
Is the share of profit from a firm taxable in the partner's hands?
No — the share of profit from a firm is exempt in the partner's hands under Section 10(2A), since the firm has already paid tax on it. However, partner remuneration and interest received from the firm are taxable as business income in the partner's return (ITR-3), within the limits allowed under Section 40(b).
What is the due date for ITR-5 filing?
31 July for firms and LLPs not subject to tax audit. 31 October (or as extended) where tax audit under Section 44AB applies. The LLP Act audit and the income tax audit have different thresholds — a firm may require one without the other.
ITR-5 Filing for Firms, LLPs and AOPs — Expert CA Team in Pune
Partner remuneration computation, Section 40(b) analysis, profit allocation, and audit coordination for partnership firms, LLPs, AOPs, and investment entities across India.
- 📞 +91 98219 32683 | +91 97650 00966
- ✉ info@ndsavla.in
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