Partnership Deed Format (2026): Clauses, Stamp Duty by State, Registration and Partner Remuneration Limits

A partnership deed is the agreement that turns "let's do business together" into a firm the bank, the GST department and the Income Tax Department will recognise. Most deeds are copied from a template. Most problems come from what the template left out: no remuneration clause, a profit ratio that doesn't match reality, or nothing about what happens when a partner leaves. This guide is for people setting up a partnership firm or fixing an old deed. It gives a clause-by-clause format, the Indian Partnership Act's default rules when the deed is silent, real stamp duty figures from several states, how registration with the Registrar of Firms works, and the income-tax limits on partner remuneration and interest under the Income-tax Act, 2025, with worked examples. The figures were checked against the Acts and state notifications in October 2026.

Quick answer

A partnership deed is a written agreement between partners under the Indian Partnership Act, 1932, executed on stamp paper at your state's rate. It should state the firm name, business, place of business, partners, capital, profit ratio, working partners' remuneration and interest on capital, banking powers, admission, retirement and dissolution. Remuneration and interest are tax-deductible only if the deed authorises them, within section 35(e) of the Income-tax Act, 2025.

• Interest on capital: deductible up to 12% simple interest a year

• Remuneration: on the first ₹6 lakh of book profit (or a loss): ₹3 lakh or 90% of book profit, whichever is higher, then 60% of the balance

• Stamp duty: Maharashtra ₹500 where cash contribution is up to ₹50,000, and ₹500 for every further ₹50,000 or part (max ₹50,000); Gujarat ₹1 for every ₹100 of capital (1%), maximum ₹10,000

• Registering the firm is optional (s.58) but section 69 stops an unregistered firm from suing on contracts

What a partnership deed is and why you need one in writing

Section 4 of the Indian Partnership Act defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Section 5 adds that partnership arises from contract, not status. A Hindu undivided family running a family business isn't a partnership just because the members share profits. The contract can be oral, but a written deed (the Act calls it an "instrument of partnership") is what every authority will ask for:

• PAN and the bank. A firm applies for PAN using the deed, and a bank opens a current account in the firm's name on the strength of it.
• GST registration. The GST application asks for proof of constitution of business, and for a partnership firm that's the deed.
• Income tax. The firm can deduct partners' remuneration and interest only if the deed authorises them, as explained below.
• Registrar of Firms. Registering the firm needs the deed, and the Registrar records later changes against it.

Two partners is the minimum. The maximum is 50, under section 464 of the Companies Act, 2013 and its rules. A firm isn't a separate legal person, so partners are jointly and severally liable for the firm's debts without limit. If limited liability matters, compare the LLP route before you sign.

What the law fills in when the deed is silent

The Act lets partners set their own rights and duties by contract (section 11). Wherever they haven't, it supplies defaults. Sections 12 and 13 matter most:

• Every partner has a right to take part in the business, and a duty to attend to it diligently.
• Ordinary matters are decided by majority, but the nature of the business can't change without every partner's consent.
• Every partner can inspect and copy the books.
• No partner is entitled to remuneration for taking part in the business.
• Profits and losses are shared equally, whatever each partner contributed.
• Interest on capital is payable only if agreed, and only out of profits.
• A partner who advances money beyond agreed capital gets 6% a year interest on it.

Section 7 adds that if the deed says nothing about duration or how the partnership ends, it's a partnership at will. Any partner can then dissolve it by written notice to the others. For a business that has borrowed or signed long leases, that's a real risk. A deed that sets a term, or says the firm continues despite one partner leaving, avoids it.

The practical result: a firm whose deed only says "the partners will share profits 60:40" pays no salary to the partner who runs the shop every day. It also can't deduct any payment it does make to that partner.

Partnership deed format: the clauses to include

Use the outline below as a format. Adapt the wording to your business, and have a lawyer or CA review the final draft. The recitals and clauses follow the order most Registrars and banks expect.

Partnership deed format — clause checklist

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• Title, date and place of execution
• Parties: each partner's full name, parent's name, age, address and PAN
• Recitals: that the parties have agreed to carry on business in partnership
• Firm name and nature of business (and any lines it may take up)
• Principal place of business and branches
• Commencement date and duration (fixed term, or continuing until dissolved)
• Capital: each partner's contribution, how and when it is brought in, and treatment of property brought in
• Profit and loss sharing ratio (losses can differ from profits if stated)
• Working partners named, and the remuneration formula, linked to book profit
• Interest on capital (rate up to 12%) and on loans from partners
• Drawings: limits and whether interest is charged on them
• Bank accounts and who can sign cheques and online payments
• Books of account, financial year, audit and access to records
• Duties and restrictions: no competing business, no borrowing or guarantees beyond limits without consent
• Admission of a new partner, retirement, expulsion and death: valuation of share and goodwill, payout period
• Dissolution and settlement of accounts
• Dispute resolution: arbitration seat and governing law
• Signatures of all partners and two witnesses; notarisation if required

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The remuneration clause is where most deeds fail. Writing "a monthly salary of ₹50,000 to each working partner" seems clear, but it can backfire. If profits fall, part of that fixed sum may exceed the tax limit and be disallowed. A better clause names the working partners and says that the total remuneration will be the maximum allowed under the Income-tax Act for the year, or a stated amount, whichever is lower, split in a stated ratio. Courts and tax authorities have accepted a formula linked to book profit, as long as the deed fixes the amount or the method of computing it.

Capital and property clauses. State whether each partner's contribution is cash or property. If a partner brings in land, a building or a shop, most states charge the deed the same duty as a conveyance of that property. The deed may then need registration with the Sub-Registrar as a document affecting immovable property. Many firms keep property outside the firm and pay rent for it instead.

Exit clauses. Spell out how a retiring partner's share is valued (book value, or including goodwill), the payment period, and whether the firm continues. Section 32 lets a partner retire with the consent of all partners, by an express agreement, or by notice in a partnership at will. A clear clause avoids a forced dissolution.

Partner remuneration and interest under the Income-tax Act, 2025

From tax year 2026-27, the rules that used to be in section 40(b) of the Income-tax Act, 1961 are in section 35(e) of the Income-tax Act, 2025. The limits are the same ones that applied from AY 2025-26. A partnership firm (including an LLP assessed as a firm) can't deduct:

1. any salary, bonus, commission or remuneration to a partner who isn't a working partner. A working partner is an individual actively engaged in conducting the firm's business;
2. remuneration to a working partner, or interest to any partner, that isn't authorised by the deed, or that relates to a period before the deed authorising it;
3. total remuneration to working partners above on the first ₹6 lakh of book profit (or a loss): ₹3 lakh or 90% of book profit, whichever is higher, plus 60% of the balance;
4. interest to partners above 12% simple interest a year.

"Book profit" means the net profit in the profit and loss account, computed under the Act's business-income rules, with any remuneration to partners already debited added back. The firm itself pays tax at 30% (plus surcharge and cess). The remuneration and interest the partners receive are taxed in their own hands as business income, which usually means a lower rate.

Maximum deductible remuneration to working partners

Book profit	Limit on first ₹6 lakh	Limit on the balance (60%)	Maximum remuneration
Loss of ₹1 lakh	₹3,00,000	—	₹3,00,000
₹2,00,000	₹3,00,000 (higher than 90% = ₹1.8 lakh)	—	₹3,00,000
₹6,00,000	₹5,40,000 (90%)	—	₹5,40,000
₹10,00,000	₹5,40,000	₹2,40,000	₹7,80,000
₹25,00,000	₹5,40,000	₹11,40,000	₹16,80,000

Loss of ₹1 lakh

Limit on first ₹6 lakh

₹3,00,000

Limit on the balance (60%)

—

Maximum remuneration

₹3,00,000

₹2,00,000

Limit on first ₹6 lakh

₹3,00,000 (higher than 90% = ₹1.8 lakh)

Limit on the balance (60%)

—

Maximum remuneration

₹3,00,000

₹6,00,000

Limit on first ₹6 lakh

₹5,40,000 (90%)

Limit on the balance (60%)

—

Maximum remuneration

₹5,40,000

₹10,00,000

Limit on first ₹6 lakh

₹5,40,000

Limit on the balance (60%)

₹2,40,000

Maximum remuneration

₹7,80,000

₹25,00,000

Limit on first ₹6 lakh

₹5,40,000

Limit on the balance (60%)

₹11,40,000

Maximum remuneration

₹16,80,000

Worked example. "Patel Brothers", a Surat textile trading firm, has two working partners with capital of ₹20 lakh and ₹10 lakh. The deed allows 12% interest on capital and the maximum permissible remuneration, split equally. In tax year 2026-27, profit before interest and remuneration is ₹18.6 lakh. Interest on capital is 12% of ₹30 lakh, which is ₹3.6 lakh, so book profit is ₹15 lakh. Maximum remuneration is 90% of ₹6 lakh (₹5.4 lakh) plus 60% of ₹9 lakh (₹5.4 lakh), which is ₹10.8 lakh. The firm's taxable income is ₹15 lakh − ₹10.8 lakh = ₹4.2 lakh, taxed at the firm rate. Each partner reports ₹5.4 lakh of remuneration plus their interest. If the deed had said nothing about remuneration, the firm would have paid tax on the full ₹15 lakh.

Since 1 April 2025 the firm must also deduct TDS on payments to partners: 10% once payments to a partner exceed ₹20,000 in a year, covering salary, remuneration, commission, bonus and interest. Commentators note the same rule is carried into the 2025 Act. Build this into the firm's monthly payment process.

Stamp duty on a partnership deed: state examples

Stamp duty is a state levy, so the rate depends on where the deed is executed. Buy e-stamp paper or franked paper for the right amount before the partners sign. A deed that isn't properly stamped can't be admitted as evidence until the shortfall and a penalty are paid.

Worked example. Three partners bring in ₹3 lakh, ₹2 lakh and ₹1 lakh in cash, ₹6 lakh in all. In Maharashtra that's twelve blocks of ₹50,000, so duty is 12 × ₹500 = ₹6,000. In Gujarat it's 1% of ₹6 lakh, also ₹6,000. Raise the capital to ₹15 lakh and the two diverge. Gujarat stops at its ₹1 for every ₹100 of capital (1%), maximum ₹10,000 cap, so ₹10,000. Maharashtra charges 30 × ₹500 = ₹15,000, well below its ₹50,000 cap. If one partner instead contributes a ₹40 lakh shop, that part is stamped like a sale of the shop, which in most states is a percentage of market value.

Other states mostly charge a fixed amount for a simple cash-capital deed, plus conveyance duty where property comes in. Check the current schedule on your state's IGR or e-stamping portal. Several states revised their stamp schedules in 2024 and 2025.

Registering the firm with the Registrar of Firms

From deed to registered firm

1. 1

   Finalise and stamp the deed

   Agree every clause, buy stamp paper at your state's rate, and have all partners sign before two witnesses. Notarise it if your state's Registrar asks for that.

2. 2

   Prepare the statement in Form 1

   Section 58 requires a statement of the firm name, principal and other places of business, the date each partner joined, partners' full names and addresses, and the firm's duration, signed and verified by all partners.

3. 3

   Apply to the Registrar of Firms

   File online or at the office for the district or state where the firm does business, with the deed copy, ID and address proofs and the fee. Odisha, for example, charges an application fee of ₹2, a registration fee of ₹3 and user charges of ₹250.

   Odisha firm registration (example)
4. 4

   Record later changes

   When partners join or leave, or the firm dissolves, notify the Registrar under section 63 so the Register of Firms stays accurate.

Registration is optional. Section 58 says a firm may be registered at any time. But section 69 bars an unregistered firm from suing third parties to enforce its contracts, and bars partners from suing the firm or each other on rights under the deed. In practice, register before you need to recover a debt in court. Our partnership firm registration guide covers state-by-state Registrar procedures, and it's the natural next step after signing the deed.

Changing partners: supplementary deeds and reconstitution

A firm's membership changes more often than its founders expect. A son joins the family business, a partner retires, or an investor wants a share. Under section 31, a new partner can be admitted only with the consent of all existing partners, unless the deed says otherwise. The new partner isn't liable for the firm's acts before joining.

When a partner joins or leaves

Step 1

All partners consent (s.31 / s.32)

Step 2

Supplementary deed on fresh stamp paper

Step 3

Registrar of Firms

s.63 notice

Step 4

Bank, GST and income-tax records updated

Each change should be recorded in a supplementary deed, or a fresh deed of reconstitution, on new stamp paper. It should state the effective date, the new capital and profit-sharing ratios, the working partners and the remuneration clause. A retiring partner should also sign it, or a separate retirement deed, settling their dues. They stay liable to third parties for the firm's acts until public notice of retirement is given. For a registered firm, the change is notified to the Registrar under section 63. The bank mandate, the GST registration (an amendment of core fields) and the firm's records with the Income Tax Department also need updating.

Stamp duty on a reconstitution deed is usually charged under the same partnership article, or as a dissolution or conveyance where property moves between partners. Check your state's schedule. Done in this order, the firm's tax position continues smoothly. The new remuneration clause applies from the supplementary deed's date, and the old deed governs the period before it.

Common mistakes in partnership deeds and how to fix them

No remuneration or interest clause. The firm loses the deduction for every rupee paid to partners. Fix it with a supplementary deed. It works only from its own date, because section 35(e) disallows payments for any period before the deed authorising them.

Calling every partner "working". A partner who only invested money isn't a working partner. Remuneration paid to them is disallowed even if the deed authorises it. Name the working partners and describe their roles.

Fixed salaries that exceed the limit in a bad year. Link remuneration to book profit, as above.

Mismatch with reality. If the deed says 50:50 but the books show 70:30, the tax officer can question the deed's genuineness. Update the deed when the arrangement changes.

Under-stamping. Using ₹100 paper for a Maharashtra deed with ₹10 lakh capital means the deed can't be relied on in court until the deficit and penalty are paid. Calculate the duty from the capital clause before buying paper.

No exit mechanism. When a partner wants out, a deed without a valuation and payout clause often ends in dissolution or litigation.

Treating an MOU as a deed. A memorandum of understanding records intent and is often not binding on the main terms. Once partners start trading together, they need a full deed. See our MOU guide for when each fits.

After you sign: what to do next

With a stamped, signed deed you can apply for the firm's PAN, open a current account and register for GST using the deed as proof of constitution. Register with the Registrar of Firms soon after, and keep the original deed safe. When partners change, sign a supplementary deed, update the Registrar, the bank, GST and the income-tax records, and check that the new remuneration clause still works with the year's book profit. If you're still choosing between a firm and an LLP, compare the LLP registration guide. For the firm's return, see ITR for business.

Official links

• Indian Partnership Act, 1932 (MP Registrar of Firms copy)Sections 4, 7, 11–13, 58, 63, 69
• Odisha — firm registration and deed stamp paperForm 1, fees, documents
• Income Tax e-filing portalFirm PAN, ITR-5, TDS on partner payments
• GST portal — new registrationUpload the deed as proof of constitution

This is general information, not legal or tax advice. Confirm on the official source or with a professional.

Frequently asked questions

What should a partnership deed contain?

At minimum: firm name and business, principal place of business, partners' names and addresses, start date and duration, capital contributions, profit and loss sharing ratio, which partners are working partners, remuneration and interest on capital (with the method of calculation), drawings, banking and signing authority, books and accounts, admission, retirement and death of partners, dissolution, and dispute resolution. Without these, the Indian Partnership Act's default rules apply.

Is it compulsory to register a partnership deed?

Registering the firm with the Registrar of Firms is optional under section 58 of the Indian Partnership Act, but an unregistered firm can't sue third parties on its contracts (section 69). Stamping the deed is compulsory in every state. Notarisation is common, and some states, such as Odisha, ask for the deed to be notarised or registered before they register the firm.

How much stamp duty is payable on a partnership deed?

It depends on the state. In Maharashtra it's ₹500 where cash contribution is up to ₹50,000, and ₹500 for every further ₹50,000 or part, capped at ₹50,000. In Gujarat it's ₹1 for every ₹100 of capital (1%), maximum ₹10,000. Odisha's IGR asks for a deed on ₹200 stamp paper. If a partner brings in immovable property, most states charge conveyance duty on its market value, which is much higher.

What is the maximum remuneration to partners allowed under income tax?

Under section 35(e) of the Income-tax Act, 2025 (earlier section 40(b)), remuneration to working partners is deductible only if the deed authorises it. The limit is on the first ₹6 lakh of book profit (or a loss): ₹3 lakh or 90% of book profit, whichever is higher, plus 60% of the balance. Payments to non-working partners aren't deductible at all.

What is the maximum interest on capital allowed to partners?

Interest on partners' capital is deductible up to 12% simple interest a year, and only if the deed authorises it. Anything above that is disallowed in the firm's hands. Without any clause, the Partnership Act gives no interest on capital. A partner's advance beyond agreed capital earns 6% a year by default.

Can the partnership deed be changed later?

Yes, with the consent of all partners (section 11), by a supplementary deed on fresh stamp paper. Admission or retirement of a partner usually needs a new or supplementary deed. A registered firm then notifies the Registrar of Firms under section 63, and informs the bank, the GST department and the income-tax records. Changes only take effect for tax purposes from the date of the new deed, not retrospectively.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.The Indian Partnership Act, 1932 — Registrar of Firms and Societies, Government of Madhya Pradesh · accessed 9 October 2026
2. 2.Firm registration under the Indian Partnership Act — Odisha — Inspector General of Registration, Odisha · accessed 9 October 2026
3. 3.Income-tax Act, 2025 — section 35 (amounts not deductible), clause (e) — Taxsutra (reproduction of the Act text) · accessed 9 October 2026
4. 4.Gujarat Stamp (Amendment) Act, 2014 — article 44 substituted — Government of Gujarat (via PRS Legislative Research) · accessed 9 October 2026
5. 5.Summary of the key amendments — Gujarat Stamp (Amendment) Act, 2025 — India Law Offices · accessed 9 October 2026
6. 6.Maharashtra Stamp (Amendment) Ordinance, 2024 — Government of Maharashtra (via PRS Legislative Research) · accessed 9 October 2026
7. 7.Partnership firm stamp duty issues — BCA Journal (Bombay Chartered Accountants' Society) · accessed 9 October 2026
8. 8.Section 194T — TDS on payments to partners — Taxmann · accessed 9 October 2026