TDS on Partnership Firm u/s 194T: Firms should apply TAN before 1st April

The Finance (No. 2) Act, 2024, has brought a major income tax change for partnership firms, including Limited Liability Partnerships (LLPs), from April 1, 2025. The change is the introduction of Section 194T, which requires Tax Deducted at Source (TDS) on payments made to partners.

Introduction of Section 194T – TDS on Payments to Partners

One of the most important changes that are taking place from April 1, 2025, is the mandatory deduction of TDS on payments to partners under Section 194T. Section 194T is applied to all partnership firms and LLPs, irrespective of their turnover. Under this Section, TDS will be deducted if the total payments to a partner are above Rs. 20,000 in a financial year. If the limit exceeds Rs. 20,000, a 10% TDS will apply to the total payment amount and not just the portion exceeding Rs. 20,000.

Payments Included Under Section 194T

If a partner receives a salary of Rs. 5,00,000, the entire amount will be deducted at 10% TDS, i.e., Rs. 50,000 will be deducted as TDS.

How will Section 194T impact the tax liability of partners?

As TDS is deducted at the source under section 194T, the partners will have the credit against their final income tax liability at the time of ITR filing. If the TDS deducted is more than what the partner owes, the extra deducted amount will be refunded after the ITR is processed. The TDS deducted under this section can also be used to cover the partner’s Advance Tax payments. This helps the partner plan better throughout the year so they don’t end up with huge tax burdens.

When will the TDS be deducted?

The TDS must be deducted while crediting the amount in the partner’s account or at the time of payment- whichever is earlier.

What if the Firm fails to deduct the TDS?

If a firm fails to deduct TDS, it could result in financial and legal consequences, such as:

1) 30% disallowance of the expenses, including salary, remuneration, commission, bonus, and interest on capital.

2) Interest penalty:

•  Interest penalty of 1% per month or part of the month for non-deduction of TDS.
•  If you do not pay the deducted TDS on time, a penalty of 1.5% per month will be charged.
• For late filing, a penalty of Rs. 200 per day for non-filing of TDS returns.

How should the TDS be deducted- Annually or monthly?

The annual or monthly deduction depends on the type of payment. If the partnership agreement mentions that partners receive a monthly salary, then the TDS should be deducted monthly when the salary is credited. The interest on capital is often calculated annually. Therefore, TDS on interest should be deducted at the end of the financial year. To avoid penalties, firms need to carefully check their payment schedule and ensure they are deducting TDS at the right time for each type of payment.

Are there any Exemptions available under Section 194T?

Under Section 194T, partners cannot use Form 15G or 15H to claim an exemption from TDS on payments they receive from the partnership firm. Also, there’s no option to get a lower TDS rate under Section 197 at the moment. This means that the firm must deduct the full 10% TDS on payments, with no exceptions or reductions.

How to Apply for TAN Registration?

How to Apply for TAN Registration

You can apply for TAN through both offline and online mode. In offline mode you have fill the form manually and have to attached the required documents and then have to send your form to the official departments whereas in online mode you have to visit the official website that is https://tin.tin.nsdl.com/tan/form49B.html then you have to fill the form online and have to submit the form. Here is online procedure in stepwise-

• You have to visit the official website of Income tax department of India where you find the option of TAN registration or you can direct click on this link https://tin.tin.nsdl.com/tan/form49B.html
• After clicking on above link a web page will open and you have to click on the Online Application for TAN (Form 49B). Form 49B is for TAN registration so you have to click on the form 49B. After clicking on 49B you will get guidelines so read carefully those guidelines it will help you.
• Then you have to select the category of deductors. There are different-different categories mentioned like company, government and others so you have to choose you own category.
• Then you have to fill the whole form, you have to fill the all required informations. After filling the whole form you can save your form and if you find any error then you can also change the detail in your form. After checking your form you can submit your form along with required documents and then you can pay the required fees.
• After successful submission you have to take print of your form and then you have to send your form to the NSDL office. Address of office is mentioned on the website so you can check there.