The proposed amendment to the Income-tax Act introduces a new section, 194T, mandating tax deduction at source (TDS) on payments made by partnership firms to their partners. Currently, there is no requirement for TDS on payments such as salary, remuneration, interest, bonus, or commission. The new provision will require firms to deduct 10% TDS on aggregate payments exceeding Rs 20,000 to a partner’s account, including capital accounts, within a financial year. This amendment is intended to enhance tax compliance and streamline income reporting for partners. The TDS obligation will apply at the time of crediting the amount to the partner’s account or at the time of payment, whichever occurs first. However, if the total payments to a partner are below Rs 20,000 for the year, no TDS will be required. This change will be effective from April 1, 2025, impacting the assessment year 2025-26 and beyond.
Budget 2024: TDS under Section 194T on payment of salary, remuneration, interest, bonus or commission by partnership firm to partners
Presently there is no provision for deduction of tax at source (TDS) on payment of salary, remuneration, interest, bonus, or commission to partners by the partnership firm. Hence, it is proposed that a new TDS section 194T may be inserted to bring payments such as salary, remuneration, commission, bonus and interest to any account (including capital account) of the partner of the firm under the purview of TDS for aggregate amounts more than Rs 20,000 in the financial year. Applicable TDS rate will be 10%.
2. The provisions of section 194T of the Act will take effect from the 1st day of April, 2025.
[Clause 62]
Clause 62 of the Bill seeks to insert a new section 194T in the Income-tax Act relating to payments to partners of firms.
Sub-section (1) of the said section provides that 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 amount to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.
Sub-section (2) of the said section provides that no deduction shall be made under subsection (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.
This amendment will take effect from 1st April, 2025.
Proposed Amendment to section 194T of Income Tax Act, 1961 vide Finance Bill, 2024
After section 194S of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2025, namely:––
Payments to partners of firms.
“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.”.
