2 Important Income Tax changes for Partnership firms applicable from 1st April 2025:

2 Important Income Tax changes for Partnership firms applicable from 1st April 2025 The Finance (No. 2) Act, 2024, has introduced 2 Important Income Tax changes for Partnership firms which are applicable from 1st April 2025. These 2 changes have been discussed in this article.

Remuneration to Partners of Partnership Firm

There is a limit in the Income Tax Act, up to which we can give remuneration to the working partner of the firm. Same has been increased by Finance (No. 2) Act, 2024. The Limits applicable upto the assessment year 2024-2025: (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% of the book profit, whichever is more; (b) on the balance of the book profit at the rate of 60%: Revised Limits applicable from Assessment Year 2025-26 and subsequent years: (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% of the book profit, whichever is more; (b) on the balance of the book profit at the rate of 60%:

TDS on Payment to Partners

All Partnership Firms should gear up for Section 194T, TDS on payments to partners of firms applicable from 1st April 2025. Although generally, TDS provisions are compulsory on Partnership Firms, therefore mostly all partnership firms have Tax Deduction and Collection Account Number (TAN Number). In case you don't have TAN, please apply for the same before 1st April 2025 to avoid any kind of non-compliance later on.

Key Points of Section 194T

• Firms include LLPs under Section 2(23).
• TDS is to be deducted at the time of credit or payment, whichever is earlier.
• Provisions of Section 194T are applicable from 1st April 2025.
• Threshold Limit - Rs. 20000.
• TDS Rate: 10% when aggregate payment crosses the threshold. TDS is applicable on the whole amount when a threshold is crossed. Example: If you pay a salary of Rs. 5,00,000 to a partner, TDS will be deducted on Rs. 5,00,000 and not Rs. 4,80,000.

Is TDS applicable if Firms T/O does not exceed 1Cr in case of Bussiness or 50L in case of Profession? Yes, TDS u/s 194T is applicable on a Partnership Firm, irrespective of Firms Turnover. What are the transactions to which the section is applicable? Section 194T states that any pay, bonus, commission, interest, or remuneration provided to a firm's partner shall be liable to 10% TDS if the total amount for the relevant financial year exceeds Rs. 20,000.

Particular	Conditions	TDS Applicable
Payment to Partner	Salary/ Remuneration	YES
	Commission	YES
	Bonus	YES
	Interest on Capital/ Loan	YES
	Drawing/ Capital Repayment	NO

This new TDS requirement applies to a variety of payments made to partners, including salary, bonus, commission, interest, and remuneration, beginning April 1, 2025. Can a partner furnish a Lower TDS certificate or Form 15G/15H? Forms 15G/15H are declarations made under section 197A (No deduction to be made in certain cases). As of now, there is no provision under this section to give a No TDS Deduction Declaration for this section. The Certificate for deduction of Tax at lower rate is issued under section 197. As of now, there is no provision under this section to give a Certificate for deduction of Tax at lower rate for Section 194T. What if the partnership firm has not deducted TDS under Section 194T? Non-deduction of TDS can invite:

• 30% Disallowance of Expense of Salary/ Remuneration/ Commission/Bonus/ Interest on Capital/ Loan given to Partner.
• Interest at the rate of 1% per month or part of the month on the unpaid amount.
• Interest at the rate of 1.5% per month or part of the month in case of Non Payment of TDS after deduction.
• A penalty of Rs. 200 per day can be levied in case of Non-Filing of TDS Return.

Issuance of TDS Certificates: Once TDS is deducted, the Partnership Firm should ensure that the TDS Return is correctly filed and TDS Certificates are issued to partners on time. How will Section 194T affect Tax Liability of the Partner? At the time of Income Tax Return (ITR) Filing, the TDS deducted will be adjusted from the Tax Liability of the partner, and the excess TDS deducted will be refunded back once the ITR is processed. How will Section 194T affect Advance Tax Liability of the Partner? TDS deducted u/s 194T will be reduced from the Advance Tax Liability of the Partner.