What the deed must cover
- Name and principal place of business, and the nature of the business.
- Partners, their capital contributions, and how further capital is brought in.
- Profit and loss sharing ratio.
- Interest on capital and remuneration to working partners — how much, and how it's computed.
- Duties and authority of partners: who can sign, borrow and operate the bank account.
- Books of account, audit, and access for all partners.
- Admission, retirement, death or insolvency of a partner, and how their share is settled.
- Dissolution, and how disputes are resolved.
Why the tax clauses matter
A firm can deduct interest on capital and remuneration paid to working partners only if the deed authorises them, specifies how they're computed, and the amounts stay within the limits the Income-tax Act sets — simple interest of up to 12% a year on capital, and remuneration within the ceiling linked to the firm's book profit. A deed that simply says "as mutually agreed" can cost the deduction.
Since 1 April 2025, a firm also deducts TDS at 10% on payments of salary, remuneration, commission, bonus or interest to a partner once they exceed ₹20,000 in the year, so the deed and the firm's payment process should line up.
Documents required
- Names, addresses, PAN and Aadhaar of all partners.
- Proposed firm name, place of business and nature of business.
- Capital each partner will bring in, and the agreed profit-sharing ratio.
- Terms for interest on capital and remuneration.
- Address proof for the place of business.
- For an amendment: the existing deed and any earlier amendments.
How we draft it
Agree the commercial terms
Capital, profit share, roles and remuneration, and what happens when a partner leaves — discussed with all partners.
Draft
The deed is drafted with the tax clauses computed properly, not left to be decided later.
Review and sign
Partners review, sign on stamp paper, and witnesses attest.
Register, if chosen
The firm is registered with the Registrar of Firms, and the registration certificate obtained.
Follow-on registrations
PAN, bank account and GST registration use the signed deed.
Practical notes from our engagements
- Remuneration clause too vague. "Such remuneration as partners decide" doesn't specify the amount or the manner of computation. Write the formula into the deed.
- No clause for a partner's death. Without it, the firm can dissolve by default on a partner's death. A continuation clause keeps the business running.
- Deed not updated after a change. When a partner joins or leaves, the deed, the Registrar of Firms, GST and the bank all need updating.
How we handle partnership deeds
We draft from a conversation with all partners, compute the tax clauses so the deduction is secure, and handle registration with the Registrar of Firms and the follow-on PAN, bank and GST work in the same engagement.
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Frequently asked questions
Is registering a partnership deed compulsory?
Registration of the firm with the Registrar of Firms isn't compulsory, but an unregistered firm can't sue third parties to enforce its contracts, and partners can't sue the firm or each other to enforce rights under the deed (except suits for dissolution or accounts of a dissolved firm). Most firms register.
Can a partnership deed be changed?
Yes, by a supplementary deed signed by all partners, followed by updating the Registrar of Firms, GST registration and the bank.
How much interest can partners get on capital?
The Income-tax Act allows a deduction for simple interest of up to 12% a year, provided the deed authorises it.
Is TDS deducted on payments to partners?
Yes, since 1 April 2025: 10% on salary, remuneration, commission, bonus or interest to a partner once the total exceeds ₹20,000 in the year.
How many partners can a firm have?
Up to the limit prescribed under the Companies Act for partnerships — currently 50.