Partnership firms and AOPs

How firms and associations of persons are taxed and what partners pay. Each answer below explains one point in plain words, works through an example, and links the exact section of the law it relies on.

• Does a partnership firm have to pay advance tax in quarterly instalments?Section 147 requires an AOP to pay quarterly advance tax by 25 September, 25 December, 25 March and 15 June, using a turnover formula or its own estimate.
• Our firm's turnover is over Rs. 300 million. Do we need audited accounts to keep the partners' share exempt?Under section 92(1), partners of an AOP with turnover of Rs. 300 million or more lose the share exemption unless CA or CMA audited accounts go with the return.
• Are partners personally liable if the firm does not pay its tax or commits a tax offence?Section 139(5) makes every AOP member jointly and severally liable for tax the AOP cannot pay, and section 200 treats every member as guilty of its offences.
• Can the firm deduct the salary, interest or commission it pays to partners?Section 21(j) bars an AOP from deducting profit on debt, brokerage, commission, salary or other remuneration paid to a member, so it stays in taxable income.
• If the firm files its return, do the partners still have to file their own returns and wealth statements?The firm's return does not cover its partners. Section 114 sets who must file, and the section 116(2) proviso makes every AOP member give a wealth statement.
• Does a partnership firm have to declare its beneficial owners to FBR?Yes. Section 181E requires every AOP to file its beneficial owners with FBR and update them when they change. The penalty table sets Rs. 1,000,000 per default.
• Does a partnership firm need its own NTN separate from the partners' NTNs?A firm is a separate person under section 80 and section 181 requires every taxpayer to register. A return from an unregistered person is not a return.
• How is a company's share taxed when the company is a partner in an AOP?Section 92(1) excludes a company member's share from the AOP's income and taxes it at company rates. Section 168(2A) splits tax withheld from the AOP.
• What are the income tax rates for a partnership firm or AOP for tax year 2027?An AOP pays the same slab table as a non-salaried individual in tax year 2027: 0% up to Rs. 600,000, then 15%, 20%, 30%, 40% and 45%. Worked examples inside.
• Is a partnership firm taxed separately from its partners in Pakistan, and is my share of profit taxed again?Section 92 taxes a firm or AOP as its own taxpayer and exempts a partner's share once the AOP has paid tax, subject to the company-member and audit provisos.
• Is a limited liability partnership (LLP) taxed as a company or as an AOP?From 1 July 2026 section 80 names a limited liability partnership as an AOP, and section 92(4A) taxes members on their share where the LLP's income is exempt.
• What happens if our firm files its return late?A firm that files late faces a section 182 penalty and drops off the active taxpayers' list under section 182A unless it pays the Rs. 50,000 AOP surcharge.
• Does minimum tax on turnover apply to a partnership firm?Section 113 minimum tax applies to an AOP with turnover of Rs. 100 million or more. A loss-making or low-tax firm pays a percentage of turnover instead.
• Does our firm have to deduct tax from the rent it pays for its office or shop?Under section 155, a firm or AOP paying gross rent of Rs. 1.5 million or more a year must deduct tax from the rent at the Division V rates and pay it over.
• How are a non-resident partner's share and a firm managed partly from abroad taxed?A firm is resident if its control and management is even partly in Pakistan during the year. Section 142 lets a non-resident partner's tax be recovered here.
• Can partners set off the firm's loss against their own income, and how long can the firm carry it forward?Section 59A keeps an AOP's loss inside the AOP, so partners cannot use it. Section 57 lets the firm carry a business loss forward for up to six tax years.
• Is a partnership taxed less than a private limited company?A firm pays slab rates up to 45% and partners' shares are exempt. A company pays 29% plus 15% tax on dividends. Which costs less depends on profit and payouts.
• What is the last date for a partnership firm to file its income tax return?Section 118(3)(b) gives a partnership firm until 30 September after its tax year ends to file its return. Section 119 allows a short extension on application.
• Does super tax under section 4C apply to a partnership firm?Section 4C super tax applies to every person, including a firm. For tax year 2027 a firm pays 8% of its 4C income once that income exceeds Rs. 500 million.
• Is there tax when a partnership firm is converted into a private limited company?Section 96 lets a resident firm move all its business assets into a resident company for shares with no gain or loss, if its seven conditions are all met.
• What happens for tax when a partner leaves or the partnership firm is dissolved?When a partner leaves, the firm as it stands at filing files the return. On dissolution, former partners are jointly liable and assets pass at the firm's cost.
• What counts as an association of persons: a firm, a family business, an unregistered partnership?Section 80 treats a firm, a Hindu undivided family, an LLP and other bodies of persons as an AOP. A firm is an agreement to share business profits.
• When does a partnership firm have to deduct tax on payments to suppliers and contractors?A firm deducts tax under section 153 once it is a prescribed person: an AOP constituted by law, or one with Rs. 100 million turnover in a preceding tax year.
• Which professional firms pay a 40% top rate instead of 45%?A proviso in Division I cuts the 45% top rate to 40% for an AOP that is a professional firm barred from incorporating by law or its regulator's rules.
• Why does my exempt share of profit from the AOP increase the tax on my salary or rent?Section 88 uses a partner's exempt AOP share to set the rate on other income. The (A/B) x C formula explained with a worked example for tax year 2027.