🚨 New TDS Rules Alert: Section 194T Impacts Payments to Partners from April 1, 2025! 🚨

Attention Partnership Firms and LLPs! A significant amendment is on the horizon with the introduction of Section 194T in the Income Tax Act, 1961, effective April 1, 2025. This new provision mandates Tax Deducted at Source (TDS) on specific payments made to partners. Let’s delve into the details and understand how this affects your firm.​

🔑 Key Highlights of Section 194T:

1️⃣ Applicability

• Who is Affected?

  • All Partnership Firms and Limited Liability Partnerships (LLPs) making payments to their partners.​

    Which Payments are Covered?

    • Salary​

    • Remuneration​

    • Commission​

    • Bonus​

    • Interest on Capital or Loans​

    • ​Note: Share of Profit distributed to partners remains exempt from TDS under this section.​

    2️⃣ TDS Rate and Threshold

    • Rate: TDS at 10% on the specified payments.​

    • Threshold: Applicable if the aggregate amount paid to a partner exceeds ₹20,000 in a financial year.​

      ​For example, if a partner receives ₹25,000 as remuneration in a year, TDS of 10% applies to the entire ₹25,000, amounting to ₹2,500.​

    3️⃣ Timing of TDS Deduction

    TDS must be deducted at the earlier of:​

    • Crediting the amount to the partner’s account (including capital account) in the firm’s books.​

    • Actual payment of the amount to the partner.​

      ​This ensures TDS is deducted promptly, aligning with the firm’s accounting practices.​

    ---

    🔄 Impact on Partnership Deeds and Compliance

    🔹 Revisiting Partnership Deeds

    With the introduction of Section 194T, it’s imperative to:​

    • Review and possibly amend your partnership deed to explicitly state the terms of partner remuneration and interest, ensuring clarity and compliance with the new TDS provisions.

    🔹 Compliance Obligations

    • Obtain TAN: Ensure your firm possesses a Tax Deduction and Collection Account Number (TAN) for TDS compliance.​

    • TDS Deposits: Deducted TDS must be deposited with the government within the stipulated timelines to avoid penalties.​

    • Filing TDS Returns: Regularly file TDS returns (e.g., Form 26Q) and provide TDS certificates (Form 16A) to partners, facilitating their individual tax filings.​

    ---

    🛡️ Conclusion

    The enactment of Section 194T marks a pivotal shift in the taxation of partnership firms and LLPs, emphasizing the need for meticulous compliance. Firms must proactively adjust their internal processes and partnership agreements to align with these changes, ensuring seamless operations and adherence to tax obligations.​

    ---

    📞 Need Expert Guidance?

    Navigating these new TDS provisions can be complex, but Dhan Tax is here to assist! Our team of seasoned professionals can help you understand and implement the necessary changes to keep your firm compliant.

    • Website: www.dhantax.in

    • Call/WhatsApp: +91-7678456921