TDS on Payment to Partners – Applicable from the FY 2025-26
[Query 1]
Is there any rule regarding capital gain that if the sale amount exceeds Rs. 10 Cr no capital gain exemption would be available? If yes, whether it is with regard to sale of the house property only or applicable even on sale of plots also? Please elaborate.
Opinion:
The Income Tax Act provides an exemption from Long-Term Capital Gains (LTCG) tax if the proceeds are reinvested in a residential property within the prescribed time frame. Previously, there was no upper limit on the exemption amount. However, the Finance Act, 2023 introduced a cap of Rs. 10 crore on the cost of the new property for exemption under Sections 54 and 54F. The impact of Rs. 10 Cr cap is summarized as under:
1. Capital Gain Exemption U/s 54 – Sale of House Property:
Section 54 offers capital gain exemption if the capital gain arises from transfer of any long term capital assets which is a residential house property.For capital gain exemption, taxpayers have to invest the amount of LTCG for purchase /construction of another residential house property. For section 54, the amount of LTCG alone is relevant. If the amount invested in the new house property is more than the LTCG, the entire amount is eligible for exemption and no tax is payable as such. However, if the amount invested is less than the LTCG then only the amount invested would be eligible for exemption and balance would be taxable.
For Example:
a) Mr. Ram sells his house for Rs. 25 crore and earns an LTCG of Rs. 11 crore.
b) He invests Rs. 20 crore in a new house property.
c) Despite investing Rs. 20 crore, only Rs. 10 crore is eligible for exemption under Section 54.
d) The remaining Rs. 1 crore (Rs. 11 crore – Rs. 10 crore) will be taxable.
2. Capital Gain Exemption U/s 54F –Sale of Other Assets (e.g., Land, Gold):
Section 54F offers capital gain exemption if the capital gain arises from transfer of any long term capital assets other than residential house property. For capital gain exemption U/s 54F, taxpayers have to invest the amount of Net Sale Consideration for purchase /construction of another residential house property. It’s the amount of Sale Consideration which is relevant & not LTCG for exemption U/s 54F. If the amount invested in the new house property is not less than the Net Sale consideration, the entire amount is eligible for exemption and no tax is payable. However, if the amount invested is less than the net sale consideration then only a proportionate amount would be eligible for exemption. However, investment over and above Rs. 10 Cr would not be considered for computing the exemption amount.
For Example:
a) Mr. Ram sells a plot of land for Rs. 25 crore and earns an LTCG of Rs. 11 crore.
b) He reinvests Rs. 20 crore in a new house.
c) Under Section 54F, exemption is to be calculated proportionately:
Exemption = (Rs. 11 crore × Rs. 10 crore) / Rs. 25 crore = Rs. 4.40 crore.
d) The remaining LTCG of Rs. 6.60 crore (Rs. 11 crore – Rs. 4.40 crore) will be taxable.
Thus, under both Sections 54 and 54F, the maximum allowable exemption is limited to Rs. 10 crore, irrespective of the actual investment amount.
[Query 2]
Is there any change in the amount which can be paid by the firm to the partner as salary or remuneration? If yes, from which year it will be applicable? Whether remuneration paid or payable by the firm to the partner is now liable for TDS from FY 2024-25? Whether the same is applicable for interest payment and share of profit payment also? From which year the TDS provision will be applicable? Whether the limit of Rs. 20,000/- is per month or per year?
Opinion:
1. Enhanced Deduction Limits for Partner’s Salary/Remuneration:
The Finance Act, 2024 (No. 2) has revised the eligible deduction limits for firms towards salary/remuneration paid to partners. However, deductions are permissible only if:
o The payment is made to a working partner.
o It is authorized and in line with the partnership deed.
o It pertains to a period after the execution of the partnership deed.
2. Existing Limit vis a vis Revised Limits for Deduction:
a) Existing Limit- Till FY 2023-24:
| (a) | on the first Rs. 3,00,000 of the book- profit or in case of a loss | Rs. 1,50,000 or at the rate of
90 per cent of the book- profit, whichever is more; |
| (b) | on the balance of the book-profit | at the rate of 60 per cent : |
b) New Revised Limit Applicable from FY 2024-25 onwards
| (a) | on the first Rs. 6,00,000 of the book- profit or in case of a loss | Rs. 3,00,000 or at the rate of
90 per cent of the book- profit, whichever is more; |
| (b) | on the balance of the book-profit | at the rate of 60 per cent : |
Subject to authorization by the partnership deed, the revised eligibility for deduction towards remuneration is available from FY 2024-25 & onwards
3. TDS on Salary, Remuneration, and Interest to Partners:
a) Section 194T introduces TDS at a rate of 10% on salary, remuneration, and interest payments made to partners. However, this provision applies only from FY 2025-26and is not applicable for FY 2024-25.
b) TDS applies solely to salary, remuneration, and interest payments—not on the partner’s share of profit.
c) The Rs. 20,000/- threshold is per annum, not per month.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
The copy of the chart is as under:
