TDS on Interest and Remuneration to the Partners: 10 Points to be noted
Newly introduced section 194T provides for TDS on Payments /transfers to partners in the partnership concern in the form of salary, remuneration, are subject to deduction of TDS from 01/04/2025.
Let us have a Short Overview of the Provision:
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.
The law provides that 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 for complying with theprovision of section 194T are as under:-
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.
7. Section 194T TDS does not apply on withdrawal of the capital account balance.
8. 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.
9. Section 194T is not dependent on the allowability of remuneration under section 40(b). Even if the remuneration allowable is less than the remuneration paid to the partner, the TDS will not be applicable.
10. TDS is not applicable on the credit to the partners towards the share of profit of such partner.
Government 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.
Early recovery of tax and thereby reducing burden on the partners to pay the tax at the time of filing the returns
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.
