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Section 324 Income Tax Act 2025: How Is a Firm Taxed?

Section 324 sets out the basic charge of income tax on the total income of a firm assessable as a firm. The applicable rate is the rate specified by a Central Act for the relevant tax year.

Current law: Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026. The Act generally commenced on 1 April 2026. Section 324 is in the part dealing with assessment of firms.
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What does Section 324 provide?

Statutory heading: Charge of tax in case of a firm.

324. In the case of a firm which is assessable as a firm, tax shall be charged on its total income at the rate as specified in any Central Act for relevant tax year.

Section 324 establishes the charge of tax. It does not itself specify a numerical tax rate; the rate must be identified from the applicable Central legislation for the relevant tax year.

How does Section 324 operate?

1. The firm must be assessable as a firm

The provision applies where the entity is assessable in the capacity of a firm. Section 325 contains the conditions for assessment as a firm, including evidence of partnership through an instrument and specification of partners' individual shares.

2. Tax is charged on total income

The charge is on the firm's total income, determined under the applicable computation provisions of the Act. It is not automatically a tax on gross receipts, capital contributions or every amount deposited into the firm's bank account.

3. The applicable rate comes from a Central Act

Section 324 refers to the rate specified in a Central Act for the relevant tax year. Therefore, taxpayers must check the applicable rate legislation rather than assume that Section 324 fixes a permanent rate.

4. Conditions of assessment remain important

Sections 325 and 326 address eligibility for firm assessment and consequences of non-compliance, including restrictions concerning payments to partners. Those provisions should be read alongside Section 324.

Relevant statutory definitions and expressions

Firm - Section 2(45): The expression has the meaning assigned under Section 4 of the Indian Partnership Act, 1932, and includes a limited liability partnership as defined in Section 2(1)(n) of the Limited Liability Partnership Act, 2008.
Total income: The income chargeable under the Act after applying the relevant computation, inclusion, deduction and other applicable provisions. The precise amount depends on the firm's facts and the relevant tax year.
Tax year: The period to which the income and charge of tax relate under the Income-tax Act, 2025.
Instrument of partnership: The document evidencing the partnership and specifying individual partners' shares, relevant to Section 325.

Practical illustration

Suppose a partnership firm has computed total income of Rs. 12,00,000 for a tax year and meets the conditions for assessment as a firm. Section 324 makes that total income chargeable at the rate prescribed by the applicable Central Act. The final tax payable depends on the legally applicable rate and any relevant surcharge, cess, credits or other adjustments. This illustration does not assume a particular rate.

  • Section 325: Assessment as a firm and documentary conditions.
  • Section 326: Consequences where Section 325 is not complied with.
  • Section 327: Change in constitution of a firm.
  • Section 2(45): Definition of firm, including LLP.

Frequently asked questions

Does Section 324 itself prescribe the rate of income tax on firms?

No. It directs that the rate specified by a Central Act for the relevant tax year applies.

Does Section 324 cover LLPs?

The statutory definition of firm in Section 2(45) includes an LLP, subject to the applicable provisions of the Act.

Is tax charged on turnover or total income?

Section 324 refers to total income, not turnover.

Where are the requirements for assessment as a firm stated?

Section 325 deals with the partnership instrument, partners' shares and related documentation.

Legal note: This is a general explanation of the statute. Apply the law and rate provisions for the specific tax year and facts of the firm.

Official legislation

Read the Income-tax Act, 2025 as amended by Finance Act, 2026 for the complete legislative text.

Last updated: 12 November 2026