TDS U/s 194T, Income Tax Act,1961: -

Deduction of Tax on Payment to Partners of Firm: -



Section 194T Income Tax Act,1961 provides that, whereincase any person being a firm, makes any kind of payment to the partner, other than in form of profit share i.e. to say any payment be it in nature of salary, remuneration, commission, bonus or interest, shall at time of credit of such amount or at time of actual payment, whichever be earlier, deduct TDS at the rate of 10%, irrespective of fact that said payment is relating to partner's capital account or partner's current account.

However, no such deduction shall be made unless and until the amount to be paid in aggregate in a particular financial year to particular partner, does not exceed threshold of Rs. 20,000/-.     

The same can be easily understood with the help of below examples: - 

1.    M/s. ABC intends to pay Rs. 50,000/- to each of the 3 partners i.e. Mr. A, Mr. B & Mr. C, in nature of remuneration then said firm shall first deduct TDS @ 10% i.e. Rs. 5,000/- each before making said payment to respective partners.

2.    M/s. XYZ intends to pay Rs. 60,000/- to partner Mr. X in nature of commission. Before making said payment, firm is to deduct TDS @ 10% i.e. Rs. 6,000/- and deposit same with government.

This newly added section for TDS happens to be great move of CBDT to curb down practices undertaken by many firms to diverse their earnings in books, in favor of partners and thus, benefit out of fake expense deductions and taxability of same in hands of individual partners at structured slab rates and thus, attracting lesser tax liability.


 

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