Budget 2024: 10% TDS on Firm to Partner Payments under New Section 194T [Read Bill]

The Finance Bill, 2024, introduces an important change for partnership firms with the proposal to insert a new TDS section, 194T of income tax act, 1961. This move aims to bring payments made to partners, including salary, remuneration, commission, bonus, and interest, under the TDS purview. Currently, there is no provision for TDS on such payments.

The proposed Section 194T of Income Tax Act mandates partnership firms to deduct TDS at a rate of 10% on aggregate payments exceeding Rs. 20,000 in a financial year. This includes credits to the partner's capital account or any other account. The provision will take effect from April 1, 2025, applying to Assessment Year 2025-26 and onwards.

For TDS purposes, all payments made to a partner, including salary, remuneration, commission, bonus, or interest, will be combined and treated as a single aggregate amount. This means that even if individual payments are less than Rs 20,000, they will still be subject to TDS if the total aggregate amount exceeds the threshold.

The proposed Section 194T is as follows:

"194T. (1) Any person, being a firm, responsible for paying any sum in the nature of alary, 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.".

The government has also announced changes to the remuneration limit for working partners, which will take effect from the assessment year 2025-2026 onwards. The revised limits, as proposed, are as follows:

a)	On the first Rs. 600000 of the book profit or in case of a loss	Rs. 3,00,000 or at the rate of 90 percent of the book profit, whichever is more.
b)	On the balance of the book profit	at the rate of 60 per cent.

Although the budget proposals did not directly offer relief to partnership firms, the increased limit on allowable deductions for remuneration paid to working partners partially fulfils the taxpayers' expectations.

The new TDS regime will require partnership firms to adapt and ensure compliance from the next financial year. It is essential for firms to understand the implications of section 194T and factor in the TDS deductions while making payments to their partners.

To Read the full text of the Finance Bill CLICK HERE

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