Income Tax Exemption under Section 10(2A): Partner's Share of Profit
Section 10(2A) of the Income-tax Act, 1961 excludes a partner's qualifying share in the total income of a separately assessed partnership firm from the partner's taxable total income. The exemption concerns partnership profit, not distributions from a Hindu Undivided Family (HUF).
Eligible taxpayer: A partner of a firm assessed as such, including a qualifying limited liability partnership (LLP).
Nature of exempt income: The partner's share in the firm's total income.
Amount exempt: The entire qualifying share calculated under the statutory explanation to Section 10(2A).
Important distinction: Partner remuneration and interest are governed by different provisions and are not exempt merely because they are received from the firm.
Meaning and legal provision of Section 10(2A)
Section 10 lists incomes excluded when computing total income. Clause (2A) applies where a person is a partner of a firm that is separately assessed as a firm. The provision exempts that partner's share in the total income of the firm, determined in proportion to the partner's share in profits under the partnership deed.
The legal text is available from the Income Tax Department: Section 10, Income-tax Act, 1961. The term firm includes an LLP for relevant income-tax purposes under Section 2(23).
Conditions for claiming the exemption
- The recipient must be a partner of a partnership firm or qualifying LLP.
- The firm must be separately assessed to income tax as a firm.
- The exempt amount must represent the partner's share in the total income of the firm, calculated with reference to the profit-sharing ratio specified in the partnership deed.
- Amounts received as remuneration, salary, bonus, commission or interest must be examined separately and should not be treated as exempt profit share.
How to calculate the exempt share
The explanation to Section 10(2A) provides a proportionate calculation:
For example, suppose the firm's total income is Rs. 12,00,000 and Partner A is entitled to 40% of its profits under the partnership deed. Partner A's share for Section 10(2A) is Rs. 4,80,000, which is excluded from the partner's total income, assuming the statutory conditions are satisfied.
The calculation is based on the firm's total income and the agreed profit-sharing ratio. Actual cash withdrawn or credited to the partner's capital account need not be identical to the exempt share.
Exempt profit share versus taxable partner payments
| Receipt from the firm | General tax treatment in partner's hands | Relevant provision |
|---|---|---|
| Share in the firm's total income | Exempt, subject to statutory conditions | Section 10(2A) |
| Salary, bonus, commission or remuneration from firm | Generally taxable as business or professional income, subject to applicable adjustments | Section 28(v), read with Section 40(b) |
| Interest on partner's capital or loan from firm | Generally taxable as business or professional income, subject to applicable adjustments | Section 28(v), read with Section 40(b) |
| Payments arising on reconstitution or dissolution | Require separate analysis; not automatically exempt under Section 10(2A) | Sections 9B and 45(4), where applicable |
Section 40(b) regulates deductions claimed by a firm for specified payments to partners. It does not convert remuneration or interest into an exempt share of profit. See the Income Tax Department guidance on income from different sources.
Difference between Section 10(2A) and Section 10(2) for HUF income
These two exemptions should not be confused. Section 10(2) concerns qualifying sums received by an individual as a member of a Hindu Undivided Family, subject to Section 64(2). Section 10(2A) concerns the share of a partner in the total income of a separately assessed firm. An HUF may be relevant to the beneficial ownership of a partnership interest, but the statutory identity and tax treatment of the partner must be examined separately.
Read the related article on income received as a member of an HUF under Section 10(2).
Frequently asked questions
Is the entire share of profit received by a partner tax-free?
The qualifying share in the firm's total income is exempt under Section 10(2A). Remuneration, interest and other receipts are not covered merely because the firm pays them.
Does the exemption apply to an LLP partner?
Yes, the income-tax definition of a firm generally includes an LLP, so Section 10(2A) can apply to a qualifying LLP partner's share of income.
Is this the exemption for income received from an HUF?
No. Qualifying HUF distributions are covered by Section 10(2), whereas Section 10(2A) addresses a partner's share in the income of a firm.
Does the firm have to be separately assessed?
Yes. Separate assessment of the firm is an express condition of Section 10(2A).
Official legal references
- Section 10 - Incomes not included in total income
- Income Tax Department - Treatment of income from different sources
- Income Tax Department e-Filing portal
Updated: 10 October 2026. This article explains the Income-tax Act, 1961 provision identified in the original page. For a return governed by the Income-tax Act, 2025, consult the corresponding provisions and applicable commencement and transition rules before filing.