When will Section 194T become effective?

Section 194T will be effective from April 1st, 2025, applying to Assessment Year 2025-26 and onwards.

Do individual payments below Rs.20,000 require TDS deduction?

Yes, if the total payments to a partner exceed Rs.20,000 in a financial year, TDS must be deducted even on individual payments below this amount.

How should partnership firms prepare for Section 194T?

Firms should update partnership agreements, maintain accurate payment records, and educate partners about the new TDS rules.

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Budget 2024: 10% TDS On Firm To Partner Payments Under New Section 194T

Q: What is Section 194T in the Finance Bill, 2024?

Section 194T introduces a 10% TDS on payments like salary, remuneration, commission, bonus, and interest made by partnership firms to their partners.

Q: What is the TDS threshold under Section 194T?

TDS applies to payments aggregating more than Rs.20,000 in any financial year to a partner.

Tanisha

Author

Updated: 28-01-2025 at 6:29 AM

Budget 2024: 10% TDS On Firm To Partner Payments Under New Section 194T

The Finance Bill, 2024 brings a major change for partnership firms through the proposal to introduce new TDS provisions in Section 194T of the Income Tax Act, 1961. This is aimed at bringing within the ambit of TDS payments made to partners such as salary, remuneration, commission, bonus and interest. Currently, there is no provision for TDS on such payments.

Understanding Section 194T

Proposed Section 194T makes it obligatory for partnership firms to deduct TDS at the rate of 10% on payments aggregating more than Rs.20,000 in any financial year.

This includes credits to the partner's capital account or any other account. The provision will be effective from April 1st, 2025 and shall apply for Assessment Year 2025-26 and onwards.

For TDS purposes all payments made to a partner including salary, remuneration, commission, bonus or interest will be aggregated and treated as one combined amount.

Therefore even if individual payments are below Rs.20,000 they will still be liable for deduction of TDS if the entire aggregate sum exceeds this threshold.

Proposed Section 194T Reads As Under

194T (1) Any person being a firm responsible for paying any sum like salary, remuneration, commission, bonus or interest to a partner of the firm shall at time of credit of such sum to the account of the partner (including any capital account) or at time of payment thereof whichever is earlier deduct income-tax thereon @10%.

(2) No deduction shall be made under subsection (1), where such sum or aggregate of such sums does not exceed twenty thousand rupees credited or paid by the firm to a partner during the financial year.”

Implications For Partnership Firms

The introduction of firm payment TDS under section 194T requires that partnership firms adjust and ensure compliance from the next financial year. Partnership firms must consider Section 194T implications and factor TDS deduction into partners’ payments.

Changes To Remuneration Limits

Alongside the new TDS provision, the government has also introduced changes to the remuneration limit for working partners which shall come into effect from the assessment year 2025-2026 onwards. The proposed revised limits are as follows:

a) On first Rs.600000 of book profit or in case of loss: Rs.3,00,000 or at a rate of 90% of book profit whichever is higher.

b) On balance of book profit: @60%.

Compliance And Adaptation

Although budget proposals did not directly give any respite to partnership firms, an increase in allowable deductions for remuneration paid to work partners has met taxpayers’ expectations partly. The new TDS regime will require partnership firms to adapt and ensure compliance from the next financial year.

Ensuring Smooth Implementation

To ensure smooth implementation, partnership firms should:

Review and Update Agreements: Partnership agreements need to be revisited to incorporate the provisions of Section 194T.
Maintain Accurate Records: Ensure that all payments made to partners are properly recorded and aggregated to determine TDS applicability.
Educate Partners: Partners should be educated about the new TDS provisions and their consequences on their earnings.
Seek Professional Advice: Tax professionals have to be engaged to guarantee strict adherence to the new TDS regulations.

Conclusion

To conclude, the inclusion of Section 194T in Finance Bill, 2024 has seen a significant change in the tax environment for partnership firms. The government intends to improve tax compliance and make tax processing streamlined by instructing partners to pay 10% TDS on those amounts exceeding Rs.20,000. Partnership firms need to adjust to these changes in order not to fall into any legal or financial trouble.

For more detailed information and to read the full Finance Bill, visit the official government website. Stay updated with Jaagruk Bharat on the latest insights on the Union Budget 2024.

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