SECTION 194T: TDS ON PAYMENTS BY FIRM TO PARTNERS
TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.
TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.
The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.
The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.
Note: –
Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.
Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.
Section 194T of Income Tax Act, 1961 mandates that TDS to be deducted while paying to partners of the firm( it includes Partnership firms as well as LLP) any sum which is the nature of interest, bonus, commission or remuneration.
TDS is required to be deducted: –
Or
Few examples of date of deduction are: –
|
S.no |
Date of Payment |
Date of crediting the party in books of accounts |
Date of TDS deduction |
|
1. |
30/04/2024 |
30/04/2024 |
30/04/2024 |
|
2. |
30/04/2024 |
01/05/2024 |
30/04/2024 |
|
3. |
01/05/2024 |
30/04/2024 |
30/04/2024 |
|
4. |
01/05/2026 |
30/04/2024 |
30/04/2024 |
Any firm paying to its partners any sum which is the nature of remuneration, commission, bonus or interest, and the sum paid or payable during the financial year exceeds Rs. 20,000.
Example: –
Mr. Anand a designated partner in ABC LLP received Rs. 50,000 as interest on capital balance and withdrew Rs. 2,00,000 from its capital account during the Financial Year 2025-26. What will the TDS implications on ABC LLP?
As per the provision of Section 194T, firm are liable to deduct TDS @ 10% when amount which is in the nature of interest, bonus, remuneration, commission is paid to any partner of the firm provided the amount paid or payable is more than Rs. 20,000 in a Financial Year. The firm includes Partnership firms as well as LLP.
In the case give above ABC LLP is required to deduct TDS @ 10% of Rs. 50,000 (interest payment) because the provision of Section 194T does not applies while making repayment of capital. So total TDS to be deducted is Rs. 5,000 (50,000*10%).
Payment made to partner that are covered under Section 194T are as follows: –
The TDS rate under this Section is: –
|
Sl no. |
Nature of payment |
TDS if pan is available |
TDS if pan not available |
|
1. |
Amount paid by firm to its partners in the nature of interest, commission, remuneration or bonus |
10% |
20% |
Note: –
The provision of this Section i.e. 194T is applicable from 01/04/2025.
No TDS if: –
The due date for deposit of TDS is as below: –
|
Month |
Due Date |
|
April |
On or before 7th May. |
|
May |
On or before 7th June. |
|
June |
On or before 7th July. |
|
July |
On or before 7th August. |
|
August |
On or before 7th September. |
|
September |
On or before 7th October. |
|
October |
On or before 7th November. |
|
November |
On or before 7th December. |
|
December |
On or before 7th January. |
|
January |
On or before 7th February. |
|
February |
On or before 7th March. |
|
March |
On or before 30th April. |
TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: –
|
Quarter |
Period |
Due date (TDS filing) |
|
1St quarter |
April-June |
31st July. |
|
2nd quarter |
July-September |
31st October. |
|
3rd quarter |
October- December |
31st January. |
|
4th quarter |
January- March |
31st May. |
TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.
Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.
|
Particulars |
Penalty |
|
TDS not deducted on time. |
1% per month or part of month. |
|
TDS deducted but not deposited before due date |
1.5% per month or part of month. |
|
TDS return not file on or before due date |
200 per day maximum till TDS amount. |
Q. What is the threshold limit for TDS under 194T?
A. The threshold limit for TDS under 194T is Rs. 20,000.
Q. Is Section 194T applicable when the payee is a non-resident?
A. YES, this section also applies when the payee is non-recipient.
Q. Is TDS applicable on repayment of Capital Balance?
A. NO, TDS u/s 194T is not applicable on repayment of Capital Balance.
Q. From which date TDS is applicable in accordance with the provision of Section 194T?
A. From 01/04/2025, the provision of Section 194T will be applicable.
Q. Rate in case the partner is a non-resident?
A. In case the partner is a non-resident, then the TDS rate will be 10% plus the applicable surcharge plus 4% health and education cess.
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