Taxation of Firms, LLPs and Companies: Rates, MAT, Partners

Individuals are taxed at slab rates, but firms, LLPs and companies are taxed at flat rates with their own rules. A firm is taxed on its profit after paying interest and remuneration to partners within limits, and partners are taxed on what they receive. Companies choose between a normal rate with minimum alternate tax and a lower concessional rate without incentives. This note covers these entities under the Income-tax Act, 2025.

1. Rates at a Glance

Figure 1: Rates for firms and companies

• Firms and LLPs. Taxed at 30 per cent plus surcharge and cess; an LLP is treated like a firm for income tax.
• Domestic companies. Taxed at 25 or 30 per cent depending on turnover, with minimum alternate tax on book profits; or, by option, at 22 per cent under s.200 without exemptions and incentives and outside MAT.
• New manufacturing companies. A 15 per cent rate under s.201 for companies that set up and began manufacturing within the period allowed.
• Foreign companies. Taxed at 35 per cent.

2. Firms and Partners

Figure 2: Interest, remuneration and the partner's share

• Interest to partners. Interest on capital is deductible up to 12 per cent simple interest a year, if authorised by the partnership deed.
• Remuneration. Remuneration to working partners, authorised by the deed, is deductible up to a ceiling based on book profit: on the first Rs 6 lakh, the higher of Rs 3 lakh or 90 per cent of book profit, and 60 per cent of the balance; the limits were raised by the Finance (No. 2) Act, 2024.
• Partner's hands. Interest and remuneration allowed to the firm are taxed as the partner's business income; the partner's share of the firm's profit is exempt, since the firm has already paid tax on it.
• Deduction at source. From 1 April 2025, a firm deducts tax at 10 per cent on salary, remuneration, commission, bonus or interest paid to a partner above Rs 20,000 in a year.

3. Companies, Dividends and Associations

Figure 3: Other rules

• Minimum alternate tax, s.206. A company paying normal tax below a percentage of its book profit pays that percentage instead; the Finance Act, 2026 cut the rate from 15 to 14 per cent, made MAT a final tax under the old regime with no new credit, and limited set off of existing credit under the new regime.
• Dividends. Since 1 April 2020, dividends are taxed in the hands of shareholders at their applicable rates, and the company no longer pays dividend distribution tax.
• Associations of persons. Where the shares of members are indeterminate or unknown, the association is taxed at the maximum marginal rate.

4. Frequently Asked Questions

Is a partner taxed on his share of the firm's profit?

No. The share of profit is exempt in the partner's hands because the firm has paid tax on it. Interest and remuneration allowed to the firm are, however, taxed as the partner's business income.

What is the MAT rate from 1 April 2026?

Fourteen per cent of book profit, reduced from 15 per cent by the Finance Act, 2026, which also made MAT a final tax for companies in the old regime.

5. Related Topics

• Topic 10: Charge of Income Tax and Key Definitions. Kinds of person.
• Topic 15: Profits and Gains of Business or Profession. Computing business income.
• Topic 19: Deductions, Rebate and the Tax Regimes. Rates for individuals.