Zerodha partnership firm account

Zerodha partnership firm account is a trading and demat account opened in the name of a partnership firm by Zerodha for managing the firm’s treasury or investment portfolio in Indian financial markets. Partnership firms in India are governed by the Indian Partnership Act, 1932. Unlike a company, a partnership firm is not a separate legal entity distinct from its partners; it is a body of persons carrying on business together with the intent to share profits. However, a partnership firm is treated as a separate assessable entity under the Income Tax Act, 1961, enabling it to obtain a PAN and hold assets in its name.

The partnership firm account differs from the LLP account in that the Partnership Act provides for unlimited personal liability of partners, and the firm may be either registered (with the Registrar of Firms) or unregistered (operating under a private partnership deed alone).

Eligibility

Any partnership firm constituted under the Indian Partnership Act, 1932 is eligible to open a Zerodha partnership firm account, subject to:

• The firm having a valid PAN in the firm’s name.
• The firm’s partnership deed permitting investment in securities and financial markets.
• All partners being resident Indians (non-resident partners require FEMA clearance).
• The firm not being under dissolution.

Registered firms (where the partnership deed has been filed with the Registrar of Firms under section 58 of the Partnership Act) enjoy an advantage in legal proceedings; however, Zerodha accepts accounts from unregistered firms as well, provided the partnership deed is valid and all partners’ KYC is complete.

Documentation required

If the partnership deed does not explicitly permit investment in listed securities, an addendum to the deed signed by all partners (and filed with the Registrar if the firm is registered) may be necessary.

KYC process

Zerodha does not support online eKYC for partnership firm accounts. All documentation is submitted physically to Zerodha’s registered office in Bengaluru. The authorised partner(s) undergo in-person verification (IPV) either through a video call or physical verification. Each partner’s identity is verified individually as part of PMLA beneficial ownership requirements, since in a partnership the partners themselves are the beneficial owners of the firm’s assets.

Segments available

Operational workflow

Authorised signatory and mandate

The partnership deed must designate one or more partners as authorised to operate the Zerodha trading and demat account. The authorised partner(s) are the individuals who:

• Sign the account-opening form on behalf of the firm.
• Authenticate demat debit instructions (TPIN/Easiest) in the firm’s name.
• Sign trading terminal access credentials.

If the deed requires joint authority for trading (e.g., “any two partners”), Zerodha’s demat debit mechanism must be set up to require authorisation from two partners simultaneously. In practice, CDSL’s Easiest platform and NSDL’s IDeAS platform allow joint-authorisation mandates for non-individual demat accounts.

Fund routing

The firm’s current account (in the firm’s name) is the linked bank account. All withdrawals are credited to this account and all deposits are sourced from it. Because current accounts are not eligible for UPI in the standard consumer sense, fund additions to the Zerodha trading account from a current account are typically done via NEFT/RTGS net banking. IMPS transfers from current accounts are possible with most banks.

Demat and trading account linkage

Like all Zerodha accounts, the partnership firm’s trading account is linked to a demat account held under the firm’s name with CDSL or NSDL. The demat account is in the firm’s name (e.g., “M/s ABC & Co.”), and securities are held in the name of the firm as beneficial owner.

Tax treatment

Firm-level taxation

A partnership firm is taxed as a separate entity under Chapter XVI of the Income Tax Act, 1961 at a flat rate of 30 per cent of total income (plus 12 per cent surcharge if income exceeds INR 1 crore, plus 4 per cent health and education cess). There is no basic exemption limit or slab benefit for firms. The MAT provisions do not apply to partnership firms (MAT applies only to companies under section 115JB).

Interest and remuneration to partners

Partners may receive remuneration (salary, commission, bonus) and interest on capital from the firm’s profits. These payments are deductible from the firm’s taxable income subject to the limits under section 40(b) of the Income Tax Act:

• Interest: maximum 12 per cent per annum simple interest on capital balance.
• Remuneration: limited by a slab linked to book profit (as specified in the partnership deed, and subject to section 40(b) limits).

Amounts received by partners as remuneration and interest are taxed in the partners’ personal hands at their individual slab rates.

Capital gains at firm level

Capital gains on securities sold from the partnership firm’s demat account are taxed at the firm level:

• STCG on listed equity: 20 per cent.
• LTCG on listed equity (exceeding INR 1.25 lakh): 12.5 per cent under section 112A.

Share of profit distributed to partners

A partner’s share of profit from a partnership firm (after the firm has paid its own tax) is exempt from income tax in the partner’s hands under section 10(2A) of the Income Tax Act, 1961. This prevents double taxation of firm profits.

Frequently misunderstood aspects

Unregistered vs registered firms

An unregistered partnership firm (one that has not filed its deed with the Registrar of Firms under section 58 of the Partnership Act) is not a bar to opening a Zerodha account. The firm’s PAN and the partnership deed itself (executed on stamp paper) are sufficient. However, unregistered firms cannot file or defend civil suits under section 69 of the Partnership Act; this means that if a dispute arises between the firm and a third party (including a broker), the unregistered firm has limited legal recourse in Indian courts. Many firms choose to register to avoid this limitation.

Separate PAN for the firm

The firm’s PAN (issued in the firm’s name, format: “ABC & CO.”) is separate from the partners’ individual PANs. All demat and trading account records at Zerodha are linked to the firm’s PAN. TDS on dividends or other income from the firm’s demat account is deducted on the firm’s PAN.

Addition of new partners

When a new partner joins the firm:

• A supplementary partnership deed is executed by all existing and incoming partners.
• The new deed is submitted to Zerodha.
• If the new partner is an authorised signatory, their KYC documents are added to the account.
• Zerodha’s records are updated; the demat account at CDSL/NSDL is also updated to reflect the change in account authorisation.

Adding a partner does not require closure and re-opening of the account, unlike some other entity changes.

Dissolution and account closure

Upon dissolution of the partnership firm, the demat account must be closed. Securities in the demat account must be transferred to the partners’ individual demat accounts in their profit-sharing ratio (or as agreed in the dissolution deed). This transfer is executed as an off-market delivery instruction and constitutes a taxable capital gains event in the firm’s hands at the fair market value of the securities on the date of transfer.

The trading account is closed once all open positions are squared off and all funds are withdrawn to the firm’s bank account.

References

1. Indian Partnership Act, 1932, sections 4, 58, 69.
2. Income Tax Act, 1961, sections 10(2A), 40(b), 160, Chapter XVI.
3. Finance Act, 2024.
4. SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
5. SEBI (Depositories and Participants) Regulations, 2018.
6. Prevention of Money Laundering Act, 2002.
7. SEBI Master Circular on KYC, SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37, dated 8 March 2023.