What is the New TDS Section 194T?
The Finance Bill, 2024, presents a significant change for partnership firms with the proposal to insert a new TDS section 194T of the Income Tax Act, 1961. The same move has the motive to bring payments made to partners, including salary, remuneration, commission, bonus, and interest, under the TDS purview. At present no provision for TDS on such payments is there.
The suggested section 194T 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 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 proposed Section 194T is as follows:
“194T. (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 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 194T and factor in the TDS deductions at the time of making payments to their partners.
