Partnership Deed Format — Section 40(b) Compliant Template (Word)

A partnership deed under the Indian Partnership Act, 1932 with remuneration and interest clauses drafted to satisfy Section 40(b) of the Income-tax Act — so the firm's deduction is never lost to defective drafting.

Free · CORAA original — SA-aligned

Updated 29 Jul 2026

Type

Deed executed between partners

Governing law

Indian Partnership Act, 1932

Stamp duty

Non-judicial stamp paper — value varies by state

Key tax hook

Section 40(b) remuneration slab + 12% interest cap

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Engagement details

The client and period this document is for.

Date of deed

Place of execution

Name of the firm

Nature of business

Principal place of business

Date of commencement of partnership

First partner — Name

First partner — Address

First partner — PAN

First partner — Capital contribution (₹)

First partner — Profit share

Second partner — Name

Second partner — Address

Second partner — PAN

Second partner — Capital contribution (₹)

Second partner — Profit share

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Partnership Deed Format — Section 40(b) Compliant Template

DEED OF PARTNERSHIP

THIS DEED OF PARTNERSHIP is made at {{execution_place}} on 30 July 2026 BETWEEN:

(1) {{partner1_name}}, residing at {{partner1_address}}, holding PAN {{partner1_pan}} (hereinafter referred to as the "First Partner"); AND

(2) {{partner2_name}}, residing at {{partner2_address}}, holding PAN {{partner2_pan}} (hereinafter referred to as the "Second Partner");

(each a "Partner" and collectively the "Partners", which expressions shall, unless repugnant to the context, include their respective legal heirs, executors and administrators).

WHEREAS the Partners have mutually agreed to carry on business in partnership on the terms and conditions hereinafter appearing, and are desirous of reducing the same to writing;

NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:

1. Name, Business and Place of Business

The partnership shall be carried on under the name and style of "{{firm_name}}" (the "Firm"). The business of the Firm shall be {{business_nature}}, and such other business as the Partners may mutually agree upon from time to time. The principal place of business shall be at {{business_address}}, with liberty to open branches at such other place(s) as the Partners may decide.

2. Commencement and Duration

The partnership shall be deemed to have commenced on {{commencement_date}} and shall be a partnership at will, subject to the provisions of the Indian Partnership Act, 1932 and the terms of this Deed.

3. Capital

The initial capital of the Firm shall be contributed by the Partners as set out in the Schedule hereto. Further capital, if any, required by the Firm shall be brought in by the Partners in such proportion as may be mutually agreed. The capital account of each Partner shall be maintained separately in the books of the Firm.

4. Profit and Loss Sharing

The net profits and losses of the Firm, after providing for interest on capital and remuneration to working partners as per Clauses 5 and 6, shall be shared by the Partners in the proportions set out in the Schedule hereto.

5. Interest on Capital

Simple interest at the rate of 12% per annum, or such lower rate as may be prescribed under Section 40(b)(iv) of the Income-tax Act, 1961 from time to time, shall be paid to each Partner on the amount standing to the credit of that Partner's capital account. Such interest shall be credited before ascertaining the divisible profits. The Partners may, by mutual consent, waive or reduce the interest for any accounting year.

6. Remuneration to Working Partners

Both Partners shall be working partners actively engaged in conducting the affairs of the business of the Firm. In consideration thereof, each working partner shall be entitled to remuneration, which the Partners hereby authorise in accordance with, and subject to the ceiling under, Section 40(b)(v) of the Income-tax Act, 1961. The aggregate remuneration payable to all working partners for each accounting year shall not exceed the maximum amount deductible under that section, computed on the book profit of the Firm as under:

On the first ₹6,00,000 of book profit, or in case of a loss — ₹3,00,000 or 90% of book profit, whichever is more;
On the balance of book profit — 60% of such balance.

"Book profit" shall have the meaning assigned to it in Explanation 3 to Section 40(b) of the Income-tax Act, 1961. The aggregate remuneration so computed shall be divided between the working partners in the ratio of {{partner1_share}} : {{partner2_share}}, or in such other ratio as the Partners may mutually agree in writing before the end of the relevant accounting year. Remuneration shall be credited to each working partner's account at the close of the accounting year. The Firm shall deduct tax at source on remuneration and interest paid or credited to Partners in accordance with Section 194T of the Income-tax Act, 1961, wherever applicable.

7. Banking

The bank account(s) of the Firm shall be opened and maintained in the name of the Firm with such bank(s) as the Partners may decide, and shall be operated by either Partner singly or by both jointly, as mutually agreed and communicated to the bank.

8. Books of Account and Audit

Proper books of account shall be maintained at the principal place of business and shall at all times be open to inspection by every Partner. The accounts shall be closed on 31st March each year, and a Balance Sheet and Profit & Loss Account shall be prepared and signed by all Partners. The accounts shall be audited wherever required under the Income-tax Act, 1961 (including tax audit under Section 44AB) or any other applicable law.

9. Admission, Retirement and Death

No new partner shall be admitted except with the consent of all the Partners. A Partner may retire by giving not less than three months' notice in writing to the other Partner(s). On the death or retirement of a Partner, the Firm shall not stand dissolved; the surviving or continuing Partner(s) may continue the business, and the amount standing to the credit of the outgoing or deceased Partner (capital, accumulated profits and interest, less drawings) shall be paid to the outgoing Partner or the legal heirs of the deceased Partner, in such manner and over such period as may be mutually agreed.

10. Arbitration

All disputes and differences between the Partners, or between a Partner and the legal representatives of a deceased Partner, touching this Deed or the business of the Firm, shall be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996. The seat of arbitration shall be {{execution_place}}.

11. Dissolution

The Firm may be dissolved by mutual consent of all the Partners, or otherwise in accordance with the Indian Partnership Act, 1932. On dissolution, the assets of the Firm shall be realised, the liabilities discharged, and the surplus, if any, divided between the Partners in their profit-sharing ratio after returning their respective capital contributions.

12. General

In all matters not expressly provided for in this Deed, the Partners shall be governed by the provisions of the Indian Partnership Act, 1932. This Deed may be altered or added to only by an instrument in writing signed by all the Partners. This Deed is executed on non-judicial stamp paper of appropriate value as required under the Stamp Act applicable in the State of execution.

SCHEDULE — Capital and Profit-Sharing Ratio

Partner	PAN	Capital contribution (₹)	Profit share
{{partner1_name}}	{{partner1_pan}}	{{partner1_capital}}	{{partner1_share}}
{{partner2_name}}	{{partner2_pan}}	{{partner2_capital}}	{{partner2_share}}

IN WITNESS WHEREOF the Partners have set their respective hands to this Deed on the day, month and year first above written.

_______________________________

{{partner1_name}} (First Partner)

_______________________________

{{partner2_name}} (Second Partner)

Witnesses

1. Signature: _______________________________

Name: _______________________________

Address: _______________________________

2. Signature: _______________________________

Name: _______________________________

Address: _______________________________

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What’s inside

An excerpt from the template.

DEED OF PARTNERSHIP

THIS DEED OF PARTNERSHIP is made at ___ on ___ BETWEEN:

WHEREAS the Partners have mutually agreed to carry on business in partnership on the terms and conditions hereinafter appearing, and are desirous of reducing the same to writing;

NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:

↑ Excerpt only — the full template is what you download as Word

About this template

What you’re downloading, and when to use it.

This template follows the format published by the Institute of Chartered Accountants of India (ICAI) in the AASB Audit Working Paper Templates (June 2023), the authoritative reference for Indian statutory-audit documentation. Fill in your firm’s letterhead and the engagement details on the form above, click Download Word file, and you’ll get a fully formatted .docx ready to use.

Everything is generated in your browser and on a stateless API endpoint — no account, nothing stored on our servers. We’ll ask for a work email once before your first download so we can send you the file and the occasional relevant update; after that, downloads on this device are instant. Edit freely in Word, Google Docs or Pages before sending to your client.

Common questions

FAQs.

Is a partnership deed required to be registered?

Registration of the firm with the Registrar of Firms under Sections 58–59 of the Indian Partnership Act, 1932 is optional, but an unregistered firm suffers the disabilities of Section 69 — it cannot sue third parties or its own partners to enforce contractual rights. The deed itself must be executed on non-judicial stamp paper of the value prescribed by the State Stamp Act. Most practitioners advise registering the firm despite the optionality.

What are the Section 40(b) limits on partner remuneration?

From AY 2025-26 (Finance (No. 2) Act, 2024), the deductible remuneration to working partners is capped at ₹3,00,000 or 90% of book profit, whichever is more, on the first ₹6,00,000 of book profit (or in case of loss), and 60% of the balance book profit. Remuneration must be paid only to working partners and must be authorised by, and in accordance with, the partnership deed — a deed that is silent or vague on remuneration can cost the firm the entire deduction.

What is the maximum interest on partner capital a firm can deduct?

Section 40(b)(iv) caps deductible interest to partners at 12% simple interest per annum. The deed must authorise the interest; interest paid in excess of 12%, or paid for a period before the deed authorised it, is disallowed in the firm's hands. The deed can always provide a lower rate or allow partners to waive interest for a year.

Does TDS apply on remuneration and interest paid to partners?

Yes, from 1 April 2025. Section 194T requires a firm (including an LLP) to deduct TDS at 10% on remuneration, interest, commission or bonus credited or paid to a partner where the aggregate exceeds ₹20,000 in a financial year. Share of profit remains exempt in the partner's hands under Section 10(2A) and is outside 194T.

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