Published 7 May 2026
Meet Tanmay Bhatnagar, 36, a partner at Bhatnagar & Associates, a chartered-accountancy firm in Hauz Khas, Delhi. He holds a 30% capital share. During FY 2025-26 the firm:
- Paid him partner remuneration ₹12,00,000 (under the Sec 40(b) ceiling specified in the Partnership Deed).
- Paid him interest on capital ₹3,00,000 (12% per annum on his ₹25 lakh capital balance, the statutory ceiling).
- Distributed his share of post-tax profit ₹18,00,000.
Tanmay is not on the firm’s payroll – he’s a partner. His income flows under ITR-3’s Schedule BP, not as salary. This article walks through how a working partner files ITR-3 with the right schedules, what is taxable in his hands, and what must be disclosed but exempt.
1. Why ITR-3 (and why neither ITR-1 nor ITR-4 work)
The form-selector eliminates everything else:
- ITR-1 (Sahaj) – excludes anyone with PGBP income. Partner remuneration is PGBP under Sec 28(v). Out.
- ITR-2 – allows Other Sources but excludes PGBP. Out.
- ITR-4 (Sugam) – allows presumptive PGBP under Sec 44AD/44ADA/44AE only. Partner income is not presumptive – it’s actual receipt under Sec 28(v). The CBDT excludes partners from ITR-4 explicitly. Out.
- ITR-3 – the residual form for individuals with non-presumptive business / professional income, including partner-in-firm. ✓
BharatTax’s questionnaire asks “Are you a partner in any firm?”. Selecting Yes locks the form to ITR-3 and unlocks the partner-only sub-schedule (a slim Schedule BP that captures only remuneration + interest, not the firm’s full books).
2. Tax treatment of partner income (Sec 28(v) + Sec 10(2A))
| Income type from firm | Section | Taxable in partner’s hands? |
|---|---|---|
| Partner remuneration (working partner only) | 28(v) | Yes – under PGBP |
| Interest on partner capital (rate per Deed, max 12%) | 28(v) | Yes – under PGBP |
| Share of profit (post-firm-tax) | 10(2A) | No – fully exempt |
Sec 28(v), 10(2A), 40(b) – partner remuneration ceiling formula confirmed for AY 2026-27.
The exempt share of profit must still be disclosed in Schedule EI (Exempt Income), not in Schedule BP. Tanmay’s ₹18 lakh share is recorded there for transparency, but it does not enter Total Income.
Sec 40(b) ceiling – the firm’s side. A firm cannot deduct partner remuneration above:
- On the first ₹6,00,000 of book profit (or in case of a loss): ₹3 lakh or 90% of book profit, whichever is higher
- On the balance of book profit: 60%
Sec 40(b) thresholds revised by Finance Act 2024; effective FY 2024-25 onwards.
Excess remuneration is disallowed in the firm’s hands. Two consequences: (a) firm pays more tax on the disallowed amount; (b) the partner is still taxable on the entire amount received under Sec 28(v), regardless of what the firm could deduct.
The Partnership Deed must explicitly authorise both the remuneration formula AND the interest-on-capital rate. Without deed authorisation, both are disallowed in the firm’s hands and taxable in yours.
What flows to your ITR-3. Tanmay reports only:
- Schedule BP partner section: ₹15,00,000 (₹12L + ₹3L)
- Schedule EI: ₹18,00,000 (exempt share of profit)
- Schedule OS: ₹5,500 (savings interest, personal)
He does NOT file the firm’s full P&L on his ITR-3. The firm files ITR-5 with the complete Trading + P&L + BS.
3. The new TDS hook – Sec 194T
Finance Act 2024 introduced Section 194T, applicable from FY 2025-26 (AY 2026-27 – the very year Tanmay is filing for). The firm must deduct TDS at 10% on partner remuneration + interest on capital + bonus, when the aggregate paid in a financial year exceeds ₹20,000 to that partner. 194T threshold + rate per Finance Act 2024.
For Tanmay:
- Remuneration ₹12,00,000 + Interest on capital ₹3,00,000 = ₹15,00,000
- 10% of ₹15,00,000 = ₹1,50,000 TDS
The firm issues Form 16A quarterly. Tanmay claims the TDS in his ITR-3 Schedule TDS-2 (TDS other than salary).
First-year-of-194T trap. Many firms have not yet operationalised 194T deduction (it’s brand-new for FY 2025-26). If your firm deducted nothing, the remuneration is still fully taxable in your hands – and the firm faces a Sec 40(a)(ia) disallowance of 30% of the payment for not deducting TDS. Your filing isn’t blocked, but you’ll have a higher self-assessment tax outflow because no TDS credit offsets your liability. Push your firm to deduct from FY 2025-26 Q1 onwards if they haven’t started.
4. What you need
| Document | Why |
|---|---|
| Partnership Deed | Confirms remuneration formula + interest-on-capital rate. ITD can ask. |
| Firm’s audited financials | For reconciling share of profit + capital balance. |
| Form 16A (Sec 194T) | TDS credit on remuneration / interest / bonus. |
| Form 26AS | Cross-check the 194T entry. |
| Firm’s PAN | Mandatory in Schedule BP partner section. |
| Bank statements | For receipts. |
| PAN, Aadhaar | Standard. |
| 80C / 80D / 80CCD investment proofs | If old regime turns cheaper. |
5. Step-by-step walkthrough
Step 1 – Sign in
Step 2 – Skip last-year import (manual flow)
Step 3 – Personal information
Step 4 – Questionnaire
In the income-sources questionnaire, tick Business / Profession. A sub-question asks “Are you a partner in any firm?” – select Yes. BharatTax routes the return to ITR-3 and unlocks the partner sub-schedule. The questionnaire also asks whether you have salary, capital gains, foreign assets, and other-sources income; Tanmay marks only Other Sources (his ₹5,500 savings interest) and leaves the rest off.
Step 5 – Partner-in-firm sub-schedule (Schedule BP partner)
Click View on the Business / Profession (partner) card. The sub-schedule asks for one row per firm:
- Firm name: Bhatnagar & Associates
- Firm PAN: AAEFB1234T (use the firm’s PAN – not your own)
- Capital balance at year-end: ₹25,00,000
- Profit-sharing ratio: 30%
- Remuneration received u/s 28(v): ₹12,00,000
- Interest on capital received u/s 28(v): ₹3,00,000
- Share of profit (exempt) u/s 10(2A): ₹18,00,000
Why the deed matters here. BharatTax’s partner card has a “Deed authorises this rate?” checkbox per row. Tick it for both remuneration and interest. ITD’s processing engine matches the rates against the firm’s ITR-5 disclosures; a mismatch can trigger a notice in either return.
Step 6 – Schedule EI (exempt income disclosure)
The exempt share of profit ₹18,00,000 auto-flows from the partner card into Schedule EI. Verify it appears under “Exempt income from firm under Sec 10(2A)” – this is mandatory disclosure (omitting it risks a Sec 139(9) defective-return notice).
Step 7 – Schedule TDS-2 (claim 194T credit)
Add a TDS-2 row:
- Deductor TAN: (firm’s TAN)
- Deductor name: Bhatnagar & Associates
- Section: 194T
- Gross payment: ₹15,00,000
- TDS deducted: ₹1,50,000
Cross-verify against the firm’s Form 16A and your 26AS. Mismatches between Form 16A and 26AS are the firm’s problem to fix (revise the TDS return); don’t claim more credit than 26AS shows.
Step 8 – Chapter VI-A deductions (old regime path)
- 80C (PPF): ₹1,50,000
- 80D (self, age 36, not senior): ₹30,000 (within the ₹25K cap for non-senior; see 80D mechanics) 80D cap for self below 60. Standard answer: ₹25,000.
- 80CCD(1B) (NPS additional): ₹50,000
- 80TTA (savings interest): ₹5,500 (auto-derived from the OS row)
Important. Partner remuneration is PGBP – so Chapter VI-A deductions DO apply against it (under the old regime). What does NOT apply: the Sec 16(ia) standard deduction of ₹50,000 / ₹75,000. That deduction is only for salary income. Tanmay loses no rupees by entering it elsewhere – BharatTax greys out the salary card when there’s no salary – but it’s a frequent mental error for first-time partner-filers.
Step 9 – Schedule TI
| Line | New regime | Old regime |
|---|---|---|
| Income from PGBP (partner) | ₹15,00,000 | ₹15,00,000 |
| Income from Other Sources | ₹5,500 | ₹5,500 |
| Gross Total Income | ₹15,05,500 | ₹15,05,500 |
| Less: Chapter VI-A | – | ₹2,35,500 |
| Total Income (Sec 288A) | ₹15,05,500 | ₹12,70,000 |
figures derived; run fixture through BharatTax to confirm.
Note: Schedule EI’s ₹18,00,000 exempt share of profit is NOT in any of the lines above. It’s disclosed-but-not-taxed.
Step 10 – Compute tax
Approximate output (run through BharatTax for exact):
| New regime | Old regime | |
|---|---|---|
| Tax on slab | ₹1,00,825 | ₹1,93,500 |
| 87A rebate | ₹0 (TI > ₹12L) | ₹0 (TI > ₹5L) |
| Surcharge | ₹0 | ₹0 |
| Cess 4% | ₹4,033 | ₹7,740 |
| Total tax | ₹1,04,858 | ₹2,01,240 |
| Less: 194T TDS | ₹1,50,000 | ₹1,50,000 |
| Net result | Refund ₹45,142 | Pay ₹51,240 |
arithmetic against AY 2026-27 widened slabs (NEW: 0/4/8/12/16/20/24L at 0/5/10/15/20/25/30%; OLD unchanged from AY 2025-26).
New regime wins by ₹96,382 here. At a total income of ₹15 lakh, the AY 2026-27 widened new-regime slabs are decisive. Even with PPF + 80D + 80CCD(1B) totalling ₹2.35 lakh of deductions, the old regime still pays nearly twice as much tax. 80C + 80D + NPS stack only starts to bite back somewhere in the ₹20-25 lakh range for partner-style income (no Sec 16(ia) standard deduction available). BharatTax computes both regimes for every filer.
Step 11 – Confirm regime and download JSON
Tanmay confirms New Regime, downloads the ITR-3 JSON, uploads to incometax.gov.in, e-verifies via Aadhaar OTP. The ₹45,142 refund processes in 2-4 weeks.
AY 2026-27 schema window. As of this article’s date, the CBDT ITR-3 schema v1.4 for AY 2026-27 has not been published. BharatTax shows JSON downloads as “🔒 Locked – AY 2026-27 schema pending” until CBDT releases v1.4 (target: May 2026). Compute / PDF / save all work – you can finalise and review now, download when the schema arrives. schema-released flag at filing time.
6. Common mistakes for partner filers
[VERIFY all items below.]
- Reporting share of profit as taxable. Sec 10(2A) makes it exempt. Disclose under Schedule EI only – never in Schedule BP as income.
- Treating partner remuneration as salary. It’s PGBP under Sec 28(v), NOT salary under Sec 17. The Sec 16(ia) standard deduction does NOT apply. Don’t fill the salary card.
- Missing 194T TDS credit. First year of operation (FY 2025-26 onwards). Pull Form 16A from the firm and cross-check 26AS. Don’t forget to add a TDS-2 row.
- Filing ITR-2 or ITR-4. Both excluded for partners. ITR-3 is the only valid form.
- Ignoring the Sec 40(b) ceiling impact. If your remuneration exceeded the 90%/60% formula, the firm disallowed the excess – but the full amount remains taxable in your hands. Sec 28(v) doesn’t depend on the firm’s deduction.
- Not disclosing exempt share of profit in Schedule EI. Even though it’s not taxed, omission is a defective-return trigger under Sec 139(9). The ITD reconciles your EI against the firm’s ITR-5 distribution rows.
- Wrong firm PAN. The Schedule BP partner row asks for the FIRM’s PAN, not yours. Double-check: a firm PAN is in the format AAAFA1234A (4th letter is “F” for firm) versus an individual PAN’s “P”.
- Claiming Sec 80GG (rent paid). 80GG is for taxpayers who do not receive HRA. As a partner you don’t receive HRA – so 80GG is technically available – but only if you also don’t own a residential property at your work location. Most working partners own their home; check eligibility carefully.
7. Frequently asked questions
[VERIFY all answers below.]
Q: I’m a sleeping partner – only get share of profit. Same form? A: ITR-3 still, because of partner status. But you’ll have only exempt income (10(2A)) + any other personal income. Schedule BP for partner shows zero remuneration / zero interest, and Schedule EI shows your share of profit.
Q: Can I claim 80C / 80D against partner remuneration? A: Yes – partner remuneration is PGBP, which is part of GTI; all Chapter VI-A deductions apply (subject to their own conditions and to the regime you choose; new regime disables most of them).
Q: My firm is in audit (turnover > ₹1 cr or ₹10 cr per Sec 44AB). Do I personally need a tax audit? A: No – audit is the firm’s obligation. As a partner, your ITR-3 doesn’t trigger a separate audit. Audit applies to the entity that runs the business – the firm files audit + ITR-5; you file ITR-3 without audit.
Q: I receive remuneration but no interest on capital. Same flow? A: Yes – enter only the remuneration row. Leave interest at zero.
Q: Are travel reimbursements from the firm taxable? A: Per Partnership Deed wording. If “travel reimbursement” is actually structured as additional remuneration → taxable u/s 28(v). If genuinely a reimbursement of expense incurred wholly for the firm’s business → not income (the firm bears the expense in its books).
Q: Capital was withdrawn mid-year. How is interest computed? A: Pro-rata on the actual outstanding balance through the year, at the rate the Deed authorises (capped at 12% per annum for Sec 28(v) ceiling). If your firm computed on opening balance only, ask them to revise – both for fairness and for ITR-5 / ITR-3 reconciliation.
Q: My firm dissolved during FY 2025-26. Do I still file ITR-3? A: Yes. Report the partner remuneration / interest received until dissolution as PGBP. The dissolution itself may also trigger Sec 45(4) capital gains in your hands depending on capital-account settlement – consult before filing.
Q: I’m a partner in TWO firms. Do I add two rows? A: Yes. Schedule BP partner-section accepts multiple rows, one per firm. Each gets its own remuneration / interest / share-of-profit disclosure. Both Form 16A 194T credits go into Schedule TDS-2.
Q: 194T was deducted at the wrong rate (say 5%). What do I do? A: Claim only what 26AS shows. If the firm under-deducted, that’s the firm’s problem – but you’ll need to pay the differential as self-assessment tax in your ITR-3. Ask the firm to revise their TDS return so 26AS catches up.
Verification checklist
- [ ] All
...markers above resolved. - [ ] Confirm Sec 194T TDS rate + threshold (Finance Act 2024; effective FY 2025-26).
- [ ] Confirm Sec 40(b) book-profit slabs (post Finance Act 2024 revision).
- [ ] Confirm AY 2026-27 widened new-regime slabs (4L bands) and 87A new-regime rebate (Rs 60K up to Rs 12L).
- [ ] Run fixture (
fixture.json) through BharatTax + replace approximate compute figures with exact output. - [ ] Persona uniqueness in
_PERSONAS.md(Tanmay Bhatnagar, AAAPB4567T). - [ ] Confirm BharatTax’s partner sub-schedule field labels match article references.
- [ ] Confirm 194T row entry path (Schedule TDS-2 with section “194T”) in latest BharatTax UI.