Section 324: charge of tax in the case of a firm

Introduction

Section 324 states the tax-charge rule for a firm that is assessable as a firm. Tax is charged on that firm’s total income at the rate specified by a Central Act for the relevant tax year.

The section intentionally does not give a fixed percentage. The applicable rate must be taken from the Central Act for the year, while the question whether the entity is assessable as a firm is addressed in the adjacent firm-assessment provisions.

Key takeaways

The rule

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

When this provision applies

Begin with the firm’s assessment status and the relevant tax year. Section 325 deals with the instrument, specified partner shares and associated requirements; Section 324 then identifies the statutory basis for charging tax on the firm’s total income.

Calculate total income under the applicable computation provisions before applying the relevant rate. Accounting profit, turnover and the amount distributed to partners are different measures and should not be substituted for total income.

Limits and procedural safeguards

Section 324 does not itself prescribe a permanent percentage or settle surcharge, cess or the treatment of a separately taxed income category. Check the applicable Central Act and other relevant charging provisions for the particular year and income.

This section does not grant a deduction for every partner payment or determine the partners’ personal tax treatment. Keep the firm’s computation, Section 325 compliance and any Section 326 consequence distinct from the partners’ computations.

Step-by-step review

1. Confirm the relevant tax year and the basis for assessment as a firm.

2. Prepare the total-income computation, identifying deductions and any income requiring separate treatment.

3. Locate the applicable Central Act rate provisions for that year and apply the relevant conditions.

4. Reconcile the tax calculation, applicable additional levies and payments or credits separately.

Hypothetical example

Hypothetical illustration: a firm has accounting profit of ₹12 lakh but an assumed correctly computed total income of ₹14 lakh after tax adjustments. Section 324 directs attention to the total-income figure and the applicable year’s Central Act rate provisions; it does not authorise applying a remembered percentage to the ₹12 lakh book profit.

Records to prepare

The partnership instrument, partner shares and applicable Section 325 compliance evidence.

A reconciliation from accounting profit to total income, with separately treated income identified.

The relevant Central Act rate provisions and a traceable tax computation.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 324 and related provisions

Step-by-step flow for charging tax on a firm under Section 324

1. 1

   Is the firm assessable as a firm?

   Check the conditions in Section 325 (partnership instrument specifying shares, certified copy with the return).

   • No: Section 324 does not apply; see the related section on assessment when Section 325 is not complied with.
   • Yes: Go to the next step.
2. 2

   Compute the firm's total income

   Compute total income under the provisions of the Act, which may differ from the accounting profit.

3. 3

   Find the rate

   Section 324 takes the rate specified in any Central Act for the relevant tax year. It does not itself state a rate.

4. 4

   Charge tax

   Apply that rate to the firm's total income for the tax year.

Practical checklist

Glossary

Total-income computation

The calculation of taxable total income under the Act, which may differ from accounting profit.

Relevant tax-year rate

The rate applicable under the relevant Central Act for the tax year being assessed.

Frequently asked questions