Section 194T: TDS on Payments to Partners.

After introduction of Section 194T , all payments /transfers to partners in the partnership concern , in the form of salary, remuneration, are subject to deduction of TDS  from 01/04/2025.
 

Section 194T is reproduced as -

(1) Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-tax thereon at the rate of ten per cent.

(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year.

Thereby , it provides --- any firm paying any amount above Rs. 20, 000/- in the nature of salary, remuneration, commission, bonus or interest shall deduct 10% interest at the time of credit or payment whichever is earlier.

“firm” means  and have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (referred as LLP Act)

Section 2(23)(ii) of the Income Tax Act which defines ‘partner” is as follows:

“partner” shall have the meaning assigned to it in the Indian Partnership Act, 1932.

Exception :- Foreign LLPs are not covered under this section.

Points to be kept in mind :-

 1. If a single payment exceeds Rs. 20,000/-, TDS shall apply .

2. In case where multiple payments are likely to exceed the Rs. 20,000/- limit then TDS shall also be applicable .

 3. TDS rate applicable shall be 10% in case of resident partners.

4. In case of non-resident partners the TDS rate shall be applicable as per section 195 . as read with section 194T.

5. In case of non furnishing of PAN by Partner, TDS shall be deducted at 20% .

6. Even minors are also covered under said provision .

Similarly, TDS u/s 194T shall apply on interest payments to partners irrespective of the fact that the interest payments are allowed as deduction u/s 40(b) or not.

Does TDS u/s 194T also apply to withdrawal of capital account balance.

Section 194T TDS does not apply on withdrawal of the capital account balance.

Benefit from introduction of the TDS section 194T

1. Govt will be able to keep a check on the payments made to partners without any loopholes . Further this also broadens the tax base increasing government revenue.

2. Early recovery of tax and thereby reducing burden on the partners to pay the tax at the time of filing the returns

3. Push to the firms to maintain books properly and finalize the books to file the tax returns as early as possible.

Thus, The Government introduced the new section primarily to address the existing legislative gap concerning tax deductions on specific payments. By including section 194T, these payments will now fall under TDS regulations. The main goal, however, seems to be creating a more organized and timely system for maintaining and finalizing accounts, which will help reduce the last-minute rush during income tax return submissions

Conclusion:-

The impact of the said section is to for early recovery of tax and reducing burden on compliances of firms’ , as well as the potential for reducing tax issues through effective system to avoid any penal consequences for non-compliance. Firms have to mandatorily apply for a TAN Number immediately , if they have not yet done so, and ensure the timely deduction and deposit of TDS along with filing of TDS returns.

Advocate Ankit Dhiman

adv.ankit@hotmail.com

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