TDS Section 194T: Key Provisions & Implications for Partnership Firms & LLPs

Introduction:-

To tighten the tax compliances and to bring better transparency in the financial transactions, Government of India has introduced many sections under TDS like – Section 194Q, Section 194R, Section 194S, Section 194M, etc in the recent years.

In the same way, in order to bring the financial transactions of payment to partners by a partnership firm or an LLP, the Finance Minister – Mrs. Nirmala Sitharaman, introduced a new section of TDS – 194T in the Union Budget, 2024.

In simple words : – Now a partnership firm or an LLP has to deduct TDS @ 10% on payment to their partners, which may be in form of Salary or remuneration or commission or bonus or interest, when the aggregate amount exceeds Rs. 20,000 in a financial year.

Key Provisions to understand: –

• Payments covered for TDS purpose in form of
  • Salary
  • Remuneration
  • Commission
  • Bonus
  • Interest
• TDS is applicable only when the aggregate amount in a financial year exceeds Rs. 20,000. This does not mean that is a firm pays Rs. 10,000 as Salary, Rs. 10,000 as commission, Rs. 10,000 as interest, no TDS would be deducted. TDS has to be deducted as aggregate amount (Rs. 30,000) exceeds the threshold limit of Rs. 20,000.
• Applicable rate of TDS is 10%
• TDS shall be deducted at the time of payment of credit, whichever is earlier.
• The provision of this section 194T shall be applicable from 1^st April, 2025.

Please note: – Salary to partner does not mean salary covered under section 192. Hence TDS under 192 shall not be deducted in this case.

Challenges: –

Apart from increased compliance burden and liquidity issues to partners, the biggest challenge is the situation in which remuneration is decided on the basis of profitability. In India almost every firm/ LLP makes the payment on ad hoc basis. For the fixed remuneration the calculation is easy, however where the remuneration is decided in the end (at the time of closure of books) based upon the profitability, it will be a bit complex task.

Conclusion: –

No doubt that this insertion of section 194T would broaden the tax base and contribute significantly to the transparency and efficiency of the Indian tax system. Also the partnership firm and LLP have time till 31^st March, 2025 to prepare and implement the system of payment and avoid the complexities involved in the calculation of this TDS.