Section 194T: TDS on Payments to Partners — What Changed From April 2025
Section 194T was introduced by the Finance (No. 2) Act, 2024 and is effective from 1 April 2025. It requires every partnership firm and LLP to deduct TDS on certain payments made to partners.
WHAT PAYMENTS ARE COVERED
- Salary and remuneration
- Commission and bonus
- Interest on capital account
- Interest on loans from partners
WHAT IS NOT COVERED
- Share of profit — remains exempt under Section 10(2A)
- Repayment of capital balance — this is return of capital, not income
RATE AND THRESHOLD
TDS rate is 10%. The threshold is Rs 20,000 aggregate per partner per financial year. TDS must be deducted when the sum credited or paid, or likely to be credited or paid, to a partner during the year exceeds Rs 20,000. This means if it is already clear at the start of the year that total payments will exceed Rs 20,000, TDS should be deducted from the first payment itself. TDS applies on the full amount, not just the excess above Rs 20,000.
If the partner does not furnish PAN, TDS rate increases to 20% under Section 206AA.
WHEN TO DEDUCT
TDS must be deducted at the earlier of:
1. Credit of the amount to the partner s account (including capital account entries), or
2. Actual payment
IMPORTANT RESTRICTIONS
- Partners cannot submit Form 15G or Form 15H to avoid TDS under this section
- No certificate for lower or nil deduction is available under Section 197 for 194T payments
- CBDT has no power to issue removal of difficulties orders for this section
TDS DEPOSIT TIMELINE
- By the 7th of the month following the month of deduction
- For deductions made in March — by 30th April
NON-COMPLIANCE CONSEQUENCES
If the firm fails to deduct or deposit TDS:
- The expense may be disallowed under Section 40(a)(ia) while computing taxable income
- Interest under Section 201(1A): 1% per month for failure to deduct, 1.5% per month for failure to deposit after deduction
- Penalty under Section 271C for failure to deduct
WHAT FIRMS SHOULD DO
1. Obtain TAN if the firm does not already have one
2. Deduct TDS on every covered payment to partners from April 2025
3. Deposit TDS using Challan 281 by the 7th of the following month
4. File quarterly TDS return in Form 26Q
5. Issue Form 16A to each partner as TDS certificate
WHAT PAYMENTS ARE COVERED
- Salary and remuneration
- Commission and bonus
- Interest on capital account
- Interest on loans from partners
WHAT IS NOT COVERED
- Share of profit — remains exempt under Section 10(2A)
- Repayment of capital balance — this is return of capital, not income
RATE AND THRESHOLD
TDS rate is 10%. The threshold is Rs 20,000 aggregate per partner per financial year. TDS must be deducted when the sum credited or paid, or likely to be credited or paid, to a partner during the year exceeds Rs 20,000. This means if it is already clear at the start of the year that total payments will exceed Rs 20,000, TDS should be deducted from the first payment itself. TDS applies on the full amount, not just the excess above Rs 20,000.
If the partner does not furnish PAN, TDS rate increases to 20% under Section 206AA.
WHEN TO DEDUCT
TDS must be deducted at the earlier of:
1. Credit of the amount to the partner s account (including capital account entries), or
2. Actual payment
IMPORTANT RESTRICTIONS
- Partners cannot submit Form 15G or Form 15H to avoid TDS under this section
- No certificate for lower or nil deduction is available under Section 197 for 194T payments
- CBDT has no power to issue removal of difficulties orders for this section
TDS DEPOSIT TIMELINE
- By the 7th of the month following the month of deduction
- For deductions made in March — by 30th April
NON-COMPLIANCE CONSEQUENCES
If the firm fails to deduct or deposit TDS:
- The expense may be disallowed under Section 40(a)(ia) while computing taxable income
- Interest under Section 201(1A): 1% per month for failure to deduct, 1.5% per month for failure to deposit after deduction
- Penalty under Section 271C for failure to deduct
WHAT FIRMS SHOULD DO
1. Obtain TAN if the firm does not already have one
2. Deduct TDS on every covered payment to partners from April 2025
3. Deposit TDS using Challan 281 by the 7th of the following month
4. File quarterly TDS return in Form 26Q
5. Issue Form 16A to each partner as TDS certificate
13 views
·
0 likes
·
0 comments
Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
Comments (0)
No comments yet. Be the first to comment!