The Budget 2024 has brought various changes in Direct and Indirect Taxation in India. The Government has changed various provisions detrimental to the ease of doing business in India. The Budget-2024 has changed various provisions of the Direct Taxes affecting LLPs/Partnership Firms, Individuals and HUFs. In this article we are going to discuss important changes made related to LLPs and Partnership Firms such as Change in the provisions of Section 40(b) related to allowability of remuneration paid to partners or the introduction of a new Section 194T pertaining to TDS deductible on payment to partners. The amendments made in the budget are highlighted below:
1. Introduction of Section 194T: TDS on payments to partners (Effective from 1st April, 2025)
Section 194T establishes a new framework for TDS on payments made by firms to their partners. Under this provision, any payment made to a partner—whether in the form of salary, bonus, commission, interest, or remuneration—will be subject to a TDS rate of 10% if the total amount paid within a financial year exceeds ₹20,000. This rule applies universally to all firms, including LLPs irrespective of their size, thus broadening the scope of TDS obligations and increasing compliance requirements for firms of all scales.
| Parameter | Details |
|
Applicability |
APPLICABLE TO FIRMS INCLUDING PARTNERSHIP FIRMS AND LLPs
Payments made to partners of a firm including LLP, including Salary, remuneration, commission, bonus, interest (including capital account) |
| Threshold Limit | On a single payment exceeding Rs. 20,000 or the aggregate amount paid to a partner in a financial year exceeding Rs. 20,000 |
| Rate of TDS | TDS Rate is 10% |
| Timing of Deduction | Earlier of the following two events:
– At the time of crediting the amount to the partner’s account (including capital account) – At the time of payment whether through cash, cheque, draft or other modes. |
2. Changes in provisions of Section 40(b) related to Salary to Partners/Designated Partners
Section 40 of the Act provides for amounts that shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”. Sub-clause (v) of clause (b) of the said section provides for disallowance of any payment of remuneration to any partner who is working partner which is authorized by and is in accordance with the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all partners during the previous year exceeds the aggregate amount computed as hereunder:
| Previous Limits | |
| (a) on the first Rs. 3,00,000 of the book profit or in case of a loss | Rs. 1,50,000 or at the rate of 90 per cent of the book profit, whichever is more; |
| (b) on the balance of the book-profit | at the rate of 60 per cent : |
The above limit has now been amended to limit the remuneration to working partners in a partnership firm, which is allowed as deduction. The new limit has been summarised below:
| New Limits (Effective AY 2025-2026) | |
| (a) on the first Rs. 6,00,000 of the book profit or in case of a loss | Rs. 3,00,000 or at the rate of 90 per cent of the book profit, whichever is more; |
| (b) on the balance of the book-profit | at the rate of 60 per cent : |
Notes:
Calculation of Book Profit
Book profit means the net profit as shown in the profit and loss account which is computed according to the manner laid down in the chapter IV-D as increased by amount of remuneration paid to partners which is allowed as deduction in the profit and loss account. Book profit is calculated in the following ways:
| Book Profit | Amount (Rs.) |
| Profit as per Profit & Loss account (P&L) | XXXX |
| Add: Remuneration to partners, if debited in the P&L above | XXXX |
| Add: Interest paid to partners, if debited in the P&L above | XXXX |
| Less: Interest as allowed under Section 40(b) | (XXXX) |
| BOOK PROFITS | XXXX |
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