Section 194T: TDS on Payments to Partners by Firms
Introduction
Introduced in the Union Budget 2024, Section 194T of the Income Tax Act mandates Tax Deducted at Source (TDS) on certain payments made by firms (Partnership firms or LLPs) to their partners. This provision aims to enhance tax compliance and broaden the tax net.
Person Responsible for Deducting Tax
The responsibility of deducting TDS under Section 194T lies with the firm making the payment. This includes both partnership firms and Limited Liability Partnerships (LLPs).
Category of Payee
The TDS under Section 194T applies to partners of a firm. It encompasses various payments made to them, such as salary, remuneration, commission, bonus, and interest on any account (loan or capital).
Rate of TDS
The TDS rate applicable under Section 194T is 10%.
Exemptions from TDS
TDS is not applicable under Section 194T if the aggregate payments to a partner during the financial year do not exceed Rs. 20,000. Additionally, TDS is not applicable on drawings or capital repayment to partners. However, it is applicable on interest on capital or loan from a partner.
Timeframe for Depositing TDS
The TDS deducted under Section 194T must be deposited with the government within seven days from the end of the month in which the deduction was made.
Certificate of TDS
The firm is required to issue a TDS certificate (Form 16A) to the partner on or before the due date of filing the income tax return. This certificate provides details of the TDS deducted during the financial year.
Payee’s Declaration for Non-Deduction of Tax
In cases where the aggregate payments to a partner are below the Rs. 20,000 threshold, the partner can submit a declaration to the firm stating that their income from the firm does not exceed the basic exemption limit. Based on this declaration, the firm may not deduct TDS.
Statement of TDS
The firm is required to furnish a statement of TDS deducted under Section 194T to the tax authorities in the prescribed format and within the specified timelines.
Conclusion
Section 194T marks a significant change in the tax landscape for partnerships and LLPs. By introducing TDS on payments to partners, the government aims to improve tax compliance and widen the tax base. It is crucial for firms to understand the provisions of this section to ensure accurate TDS deduction and compliance with the relevant regulations.
