Budget 2024-25 and Clause 62 – Section 194T – Payments to Partners of Firms

Summary: The Budget 2024-25 introduces Clause 62, detailing Section 194T, which mandates Tax Deducted at Source (TDS) on payments made by firms to their partners. Effective from April 1, 2025, any firm paying sums such as salary, remuneration, commission, bonus, or interest to a partner must deduct TDS at a rate of 10% if the aggregate amount exceeds Rs. 20,000 in a financial year. This deduction is required at the time of credit to the partner’s account or at the time of payment, whichever occurs first. However, if the total payments within a year are less than Rs. 20,000, no TDS will be deducted. Payments covered under this section include those made in cash, by cheque, draft, or any other mode. It is important to note that Section 194T specifically excludes such partner payments from being treated as “salary” under Section 192. Firms must comply with TDS requirements by obtaining a TAN, deducting the appropriate TDS, depositing it on time, filing quarterly TDS returns, and issuing TDS certificates (Form 16A) to the partners. This new regulation ensures greater transparency and accountability in financial transactions within partnerships.

Budget 2024-25 and Clause 62:

Section 194T – Payments to Partners of Firms.

(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.”.

What is Section 194T Simply:

Section 194T mandates that any salary, bonus, commission, interest, or remuneration paid to a partner of a firm will be subject to TDS at a rate of 10% if the aggregate amount for the relevant financial year exceeds Rs. 20,000

Applicability of Section 194T:

This section of TDS applies to payments made to partners of a firm, including salary, bonus, commission, interest, or remuneration with effect from 01st Apr’25.

Threshold Limit for Section 194T and TDS Rate:

The TDS will be applicable only if the aggregate amount paid to a partner in a financial year exceeds Rs. 20,000. The applicable TDS rate is 10%.

When TDS to be deducted under Section 194T:

At the time of credit to the account of the partner

“At the time of payment , whether in cash, cheque, draft, or any other mode.”

(Whichever is earlier)

How the limit of Rs. 20,000 is calculated:

If a single payment exceeds Rs. 20,000,

If multiple payments are made and the total of such payments exceeds Rs. 20,000 in the financial year.

Whether Section 192 (TDS on Salaries) applicable:

No, As per Explanation 2 of Section 15 Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.

Compliance under Section 194T:

Obtain TAN on or before deducting TDS

Deduct TDS @ 10%

Deposit TDS within time

File quarterly TDS returns

Issue TDS certificates (Form 16A) to the partners