Microlesson · 5-min read

Firm / LLP

# Firm and LLP

## Meaning

'Firm' means a partnership firm as defined under the Indian Partnership Act, 1932.
The term 'Firm' also includes a Limited Liability Partnership (LLP) for the purposes of the Income-tax Act.

## Key Points

A Firm/LLP is a separate taxable entity distinct from its partners.
Taxed at a flat rate of 30% (plus surcharge & cess).
Partners are taxed separately on their salary/interest received from the firm (under PGBP), but the share of profit received from the firm is exempt under Sec 10(2A) in the hands of the partners.

Worked example

### Example 1

Example: M/s ABC & Co., a partnership firm of A, B, C earns profit of ₹10,00,000. The firm pays tax @ 30% on it. A, B, C are NOT separately taxed on their share of profit (exempt u/s 10(2A)).

⚠️ Common exam mistakes

Treating LLP separately from 'Firm' — for IT Act, LLP is included in Firm.
Taxing partners separately on share of profit — it is exempt u/s 10(2A).
Applying slab rates to a Firm — Firms have a flat 30% rate.

Reference: Section 2(23) — Indian Partnership Act, 1932 (for definition); Income-tax Act, 1961

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