A New TDS Requirement for Partnership firm : 194T – From April 2025
The recent amendment to the Income Tax Act, India, introduced a new section, 194T, effective from April 1, 2025. This section mandates the deduction of tax at source (TDS) on certain payments made to partners of firms. Let’s delve into the details of this new provision and its potential implications for partnerships.
Key Features of Section 194T
- Effective Date: The provision takes effect from April 1, 2025, applicable for the Assessment Year 2025-26 onward.
- Payments Covered: TDS applies to payments such as:
- Salary
- Remuneration
- Bonus
- Commission
- Interest
These payments include amounts credited to a partner’s account (e.g., capital account) or paid in cash/cheque, whichever occurs earlier.
- TDS Rate: A flat rate of 10% is deducted on the aggregate amount paid or credited to a partner.
- Threshold Limit: No TDS is required if the total amount paid or credited to a partner in a financial year does not exceed ₹20,000.
- Scope: Applies to all firms (partnerships and LLPs) regardless of size or type of business.
Implications on Partnerships firms:
- Increased Administrative Burden: Firms will need to track payments made to partners to determine if the TDS threshold is met. This could lead to increased administrative costs and compliance efforts.
- Impact on Partner Income: The TDS deduction will reduce the net amount received by partners, potentially affecting their overall income and tax liabilities.
- Cash Flow Management: Firms may need to adjust their cash flow planning to account for the TDS deductions.
- Compliance Risks: Non-compliance with Section 194T can result in penalties and interest charges. It is essential for firms to understand and adhere to the provisions of this section.
