Section 324 of the Income-tax Act, 2025 — Charge of Tax in the Case of a Firm

In plain language

What Section 324 actually says

Section 324 of the Income-tax Act, 2025 is titled "Charge of tax in the case of a firm." In one line, it lays down the basic charging rule: where a firm is assessable as a firm, income-tax is charged on the firm's total income at the rate specified in the relevant Central Act (in practice, the annual Finance Act) for that tax year. It is the direct successor to Section 167A of the Income-tax Act, 1961.

A subtle drafting change is worth noting: the 1961 Act tied the rate to "the Finance Act of the relevant year," whereas Section 324 (as finally passed) says the rate as specified in any Central Act. This is broader wording, but the practical effect is the same — the rate is fixed each year by Parliament through the Finance Act.

Who it applies to

• Partnership firms registered under the Indian Partnership Act, 1932.
• Limited Liability Partnerships (LLPs), which are treated as firms for income-tax purposes.
• Any entity that is "assessable as a firm" — meaning it meets the conditions to be taxed as a firm (a valid partnership deed, partners specified, shares specified) rather than being assessed as an Association of Persons (AOP).

Note on the stated topic: this section is sometimes mis-tagged under "trusts/charitable," but Section 324 has nothing to do with trusts. It is squarely a firm-level charging provision. Charitable trusts are governed by the separate registration and taxation provisions of the 2025 Act.

The rate — and why there is no slab

• A firm/LLP is taxed at a flat 30% on its whole total income. Unlike individuals, a firm gets no basic exemption limit and no slab benefit — tax applies from the very first rupee of taxable income.
• Surcharge of 12% applies where total income exceeds ₹1 crore (subject to marginal relief).
• Health & Education Cess of 4% is added on income-tax plus surcharge.

How it interacts with deductions before the charge

Section 324 charges tax on total income — i.e. income after the firm has claimed its allowable business deductions. The most important of these is the deduction for remuneration and interest paid to partners (the 2025 Act successor to Section 40(b) of the 1961 Act). Key limits:

• Interest to partners: deductible up to a maximum of 12% per annum, and only if authorised by the partnership deed.
• Working-partner remuneration: deductible up to the higher of ₹1,50,000 or 90% of book profit on the first ₹3,00,000 of book profit, and 60% on the balance of book profit.

What happens at the partner's level

• Because the firm has already paid tax on its profits, the partner's share of profit is exempt in the partner's own hands (successor to Section 10(2A)) — this avoids double taxation.
• However, interest and remuneration received by a partner (which the firm deducted) are taxable in the partner's hands as business income.

Other charges that ride alongside

• Alternate Minimum Tax (AMT): if normal tax is lower than 18.5% of adjusted total income (plus surcharge/cess), the firm pays AMT; AMT credit can be carried forward.
• Firms filing ITR (typically ITR-5) must also comply with advance tax, TDS and audit provisions where applicable.

Practical takeaway: Section 324 itself is short and mechanical — it simply says "charge tax on the firm at the yearly rate." The real planning happens upstream (maximising partner remuneration/interest within limits to reduce the firm's total income) and downstream (partner-level exemption of profit share). Understanding this chain is what keeps a firm's overall tax bill efficient.