Controversy surrounding section 194T- TDS on Interest & Remuneration to the Partners
The amendment u/s 194T brings with it a set of real-world challenges for partnership firms. While the intent is clear- to ensure transparency and compliance-there are significant hurdles that need thoughtful consideration:
1. Impractical TDS Deposit Timelines
As per Section 200, TDS must be deposited within 7 days of month-end, or by 30th April for March deductions. However, remuneration to working partners is often credited based on “book profits,” which are finalized after year-end. This makes compliance within the prescribed timelines virtually impossible, risking penal interest and litigation.
2. Complexity in Identifying Nature of Payments
Withdrawals by partners during the year can be monthly or irregular and often adjusted against final remuneration. The ambiguity around whether such payments qualify as salary or advances creates uncertainty. Should TDS be deducted on every withdrawal or only on final settlement? This lack of clarity could lead to inconsistent compliance.
Interest to Partners – A Grey Area?
Section 194T covers “interest” paid to partners, but how is it different from interest covered under Section 2(28A)? Interest on partner’s loan is excluded under Section 194A(3)(iv), but interest on capital may now attract TDS under 194T. Does this override previous exemptions? A clarification is urgently needed.
Non-Resident Partners – Which Section Applies?
Section 194T doesn’t distinguish between resident and non-resident partners. However, Section 195, which governs payments to non-residents, takes precedence. It mandates TDS on any sum chargeable to tax (other than salaries). Given that DTAA provisions may override domestic law, especially in the absence of a PE, such income may not even be taxable in India. Firms need to evaluate this carefully to avoid unnecessary withholding.
Form 26AS Mismatch – A Real Risk
Income under Section 28(v) is taxed only to the extent it’s allowed under Section 40(b). But TDS under Section 194T is proposed on the gross amount, without factoring in disallowances. This creates a mismatch between reported income and TDS credits, potentially triggering notices and compliance headaches.
In summary, while Section 194T may aim to streamline taxation of partner payments, its implementation without clear guidance risks confusion, litigation, and undue hardship, especially for smaller firms.
Are these practical issues being adequately addressed?
