TDS Section 393(3) Table SI. No. 7 on Payments to Partners of Firms

What is the TDS Section 393(3) Table SI. No. 7?

Under the relevant section of the Income Tax Act, 2025, TDS is required to be deducted on payments made to partners, including salary, remuneration, commission, bonus, and interest, bringing such payments under the TDS. Before this, there was no provision for TDS on such payments under the Income Tax Act.

The suggested section of the Income Tax Act obligates the partnership firms to deduct TDS at a 10% rate on aggregate payments of more than Rs 20,000 in a fiscal year. The same comprises the credits to the capital account of the partner or any other account. The provision would come into force from 1st April 2025, applying to the AY 2025-26 and onwards.

What is the Purpose of the TDS Firm-to-Partner Payment?

For the objectives of Tax Deducted at Source (TDS), all the payments made to the partner, along with the salary, remuneration, commission, bonus, or interest, would get integrated and deemed as a single aggregate amount. It shows that even when the individual payments are lower than Rs 20,000, they will still be levied to TDS when the total aggregate amount surpasses the limit.

The Section 393(3) Table SI. No. 7 is as follows:

SI. No.	Nature of income or sum	Payer	Rate	Threshold limit
7.	Any sum like bonus, salary, commission, remuneration, or interest given to a partner of the company or credited to his account (including capital account).	Any person being a firm	10%	Rs. 20,000

The government would have also announced the revisions to the remuneration limit for working partners that come into force from the AY 2025-26 onwards. The suggested revised limits are as follows –

The budget proposals do not propose relief to the partnership firms, the surged limit on the permitted deductions for remuneration paid to working partners partially satisfied the anticipation of the taxpayers.

The new TDS regime would need the partnership firms to adopt and ensure compliance from the subsequent fiscal year. The firms must learn the implications of Section 393 and factor in the TDS deductions at the time of making payments to their partners.

Major Key Provisions of TDS Section 393(3) Table SI. No. 7

Here we have discussed the major key provisions:

TDS Rate

10% is the applicable TDS rate.

TDS Threshold Limit

If the aggregate amount paid to the partner in a tax year surpasses Rs 20,000, then only the TDS shall be applicable.

Timing of TDS Deduction

As per this section, TDS must be deducted at the earlier of the two events mentioned below-

• During the credit to the account of the partner.
• During the payment, whether in cash, cheque, draft, or any other mode
• Assuring that the tax is deducted promptly and accurately, preventing any evasion or delay in tax payment

TDS Applicability

The same TDS section applies to the payments made before the partners of a firm, along with the salary, bonus, commission, interest, or remuneration.

What is the Method to Compute the Limit of INR 20,000?

There are two methods to compute the threshold limit of Rs 20,000-

• Single Payment: If a single payment surpasses Rs. 20,000, TDS is to be deducted, as discussed in the above example relating to Dhairya
• Aggregate Payments: If the case is of making multiple payments, each less than Rs. 20,000, TDS is to be deducted if the total of such payments surpasses Rs. 20,000 in the fiscal year.

For instance, Seema is drawing a remuneration of Rs 15,000 per month from her partnership firm. In April 2025, she received 15,000, and as it is below the threshold limit, no TDS is accountable to be deducted, next month she again receives a salary of Rs. 15000. Now, as per my view, TDS will be deducted on the entire Rs. 30,000 as it surpasses the threshold limit.

By using a cumulative method, all payments, regardless of size, are taken into consideration, resulting in a wider range of taxable income.

In What Way Does It Vary From Section 392(192)?

TDS Section 392 of the Income Tax Act deals with TDS on salaries, which applies solely to income levied under the head “Salaries.” It does not include payments made to partners of a firm, since these are not regarded under the “Salaries” head.

Section 15(4) mentions that salary, bonus, commission, or remuneration to partners of a firm are not included in the income head “Salaries.” Thus, these payments were not obligated for TDS under section 192.

Through drawing these payments under the TDS Section 393(3) Table SI. No. 7 for payment to any person bridges this gap, ensuring that the income of the partners from the firms is within the tax deduction at source.

What Will be the Effect of TDS Section 393(3) Table SI. No. 7 On Firms?

Below is the impact of TDS Section 393(3) Table SI. No. 7 for companies:

Increased Tax Compliance Burden

Section 393(3) Table SI. No. 7 major impact is the rise of the compliance load on firms, particularly smaller ones. These firms are needed to receive a Tax Deduction and Collection Account Number and ensure timely TDS deductions and deposits. It adds an administrative layer to their functionality, requiring strict maintenance of records and timely compliance.

Capital Blocking

TDS deduction at a 10% rate on payments surpassing Rs 20,000 could be directed to a temporary blocking of capital for partners. The same can impact their liquidity, particularly when the returns are delayed. Firms shall be required to handle their cash flows efficiently to mitigate the impact.

Tips to Know During Compliance and Record-Keeping

To comply with Section, firms should:

• Filing of TDS Returns: File quarterly TDS returns describing the deductions and payments made, which increases the load on small firms.
• Issuing TDS Certificates: Issue TDS certificates (Form 16A) to the partners, furnishing them with proof of the tax deducted.
• Deduct TDS: Confirm that TDS is deducted at 10% on payments surpassing the Rs. 20,000 threshold, from April 2025, i.e., the date of applicability of this section
• Deposit TDS: Deposit the deducted TDS to the government within the specified duration, and in the proper manner, to prevent any fees or penalties
• Get Your TAN – If it has not been received yet: Firms should obtain a Tax Deduction and Collection Account Number (TAN) if they do not have one.

Advantages

To be honest, this part is more of a hindrance than anything else, but I’m making an effort to find the good in it.

Financial Discipline

Imposing TDS deductions infuses financial accountability in corporations, prompting them to keep accurate financial records and comply with tax policies.

Enhanced Tax Compliance

TDS Section 393(3) Table SI. No. 7 for payment to any person, bringing partner payments under the TDS net, assures effective tax compliance and lessens the scope of tax evasion. The same contributes to the clarity and integrity of the tax system.

Broadened Tax Base

The inclusion of partner payments in TDS widened the tax base, assuring that more income is within the tax at source. It assists in increasing the collection of revenue for the government.

Challenges and References

Here the below points, we have mentioned some challenges and references in detail:

Effect on Liquidity

The TDS deduction could impact the partner’s liquidity, specifically in matters where the refunds get delayed. The firms and partners are required to plan their finances to handle the impact.

Awareness and Education

To ensure the streamlined implementation, it is important to develop awareness and educate the firms about the new TDS provisions.

Administrative Load

The administrative load of adhering to the Section 393(3) Table SI. No. 7 could be influential for small firms. They are required to invest in systems and manpower to manage the additional compliance needs.

It is required for the firms to prepare for the identical revision by setting the effective systems and processes, getting TAN, and ensuring timely TDS deductions and deposits. Proper execution and adequate awareness could contribute to the transparency and efficiency of the Indian tax system.