TDS on Payment to Partners – Section 194T 🚨

The Finance Act 2025 has introduced Section 194T, which mandates the deduction of TDS on payments to partners under specified conditions. This provision will come into effect from 1st April 2025, impacting partnership firms making payments to their partners.

1. What is Section 194T?

Section 194T of the Income Tax Act imposes a 10% TDS deduction on certain payments made by a partnership firm or LLP (Limited Liability Partnership) to its partners when the threshold limit is exceeded.

2. Key Provisions of Section 194T

📌 Applicability:

✔️ Applicable to all partnership firms and LLPs making payments to partners.
✔️ Effective from: 1st April 2025.

📌 Threshold Limit:

✔️ TDS is applicable only if the total payments to a partner exceed ₹20,000 per annum.
✔️ If the payments remain below ₹20,000 in a financial year, TDS is not required.

📌 TDS Rate:

✔️ 10% TDS will be deducted on eligible payments exceeding the threshold limit.
✔️ The deducted amount must be deposited with the Income Tax Department.

3. Payments Covered Under Section 194T

The following payments made by a partnership firm or LLP to its partners are subject to 10% TDS deduction:

✅ Salary – Fixed monthly or annual payments made to partners as per the partnership deed.
✅ Remuneration – Any compensation or fees paid to partners for their contribution to the firm’s operations.
✅ Commission – Any commission paid to partners based on business activities or transactions.
✅ Bonus – Additional incentives or performance-based payouts.
✅ Interest on Capital – Any interest paid on the partner’s capital contribution in the firm.

4. Payments Exempt from TDS Deduction

The following payments are NOT subject to TDS under Section 194T:

❌ Capital Withdrawal – When a partner withdraws capital invested in the firm.
❌ Loan to Partner – If the firm grants a loan to a partner, TDS is not applicable.
❌ Reimbursement of Expenses – When the firm reimburses a partner for business-related expenses incurred.

5. Compliance & Filing Requirements

📌 TDS Deduction & Payment

• TDS should be deducted at the time of payment or credit to the partner’s account, whichever is earlier.
• The deducted TDS amount must be deposited with the Income Tax Department before the 7th of the following month.

📌 TDS Return Filing

• Firms must report TDS deductions in their quarterly TDS return (Form 26Q).
• The due dates for filing TDS returns (Form 26Q) are:
  🔹 Q1 (Apr-Jun) – 31st July
  🔹 Q2 (Jul-Sep) – 31st October
  🔹 Q3 (Oct-Dec) – 31st January
  🔹 Q4 (Jan-Mar) – 31st May

📌 Issuance of TDS Certificate (Form 16A)

• The firm must provide Form 16A (TDS Certificate) to partners as proof of deduction.
• This certificate is required by partners to claim TDS credit while filing their income tax returns.

6. Consequences of Non-Compliance

❌ Failure to deduct TDS: The firm will be liable to pay the TDS amount along with interest at 1% per month.
❌ Late deposit of TDS: Interest at 1.5% per month will be levied until payment is made.
❌ Late filing of TDS return (Form 26Q): A penalty of ₹200 per day will be imposed until the return is filed.
❌ Disallowance of Expenses: If TDS is not deducted, the entire amount paid to partners may be disallowed as an expense under income tax laws, leading to higher tax liability for the firm.

7. How Can We Help?

Navigating tax compliance can be complex. Our expert tax consultants at Taxla Services can help you:

✅ Understand TDS applicability on partner payments
✅ Ensure timely deduction and deposit of TDS
✅ File accurate TDS returns (Form 26Q) to avoid penalties
✅ Claim TDS credits for tax savings

📞 Contact Us for Expert Tax Guidance!
📱 +91 9600076134 / 6374812546
📧 auditsiva2@gmail.com
🌐 www.taxlaservices.com

📢 Stay compliant and avoid penalties – File TDS on time!

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