Section 194T: A Guide to TDS Applied on Partnership Firms!

Navigating tax compliance looks a bit difficult, but section 194T makes it easier for you to understand tax filing. It concentrates on handling tax deducted at source efficiently. 

Let’s scroll down in detail. 

Section 194T in Union Budget 

Union Budget 2024 meeting, led by FM Nirmala Sitharaman, witnessed the introduction of TDS on partners remuneration. It aimed to enhance compliance and integrate transparency in financial transactions between the firms and their partners. Both the partnership firms and Limited Liability Partnerships (LLPs) fall under the same roof. 

What is Section 194T? 

194T TDS commands a new framework for TDS on company payments to partners. It underlines the idea of charging 10% TDS of the total amount paid to the partnership firms within a financial year if it exceeds ₹20,000. The payment can be made for salary, bonus, commission, interest, or remuneration.

Section 194T applies to all businesses, regardless of size and type. This broadens the scope of TDS obligations and raises compliance requirements for firms. 

Which Payments are Covered Under 194T TDS? 

Have you ever wondered if tax is applicable to the money in your bank account? With 194T, payments made by banks, financial institutions, and cooperative societies all fall under the TDS radar. Let’s Check out which payments are affected under TDS on Partnership firms! 

1. Remuneration
2. Commission
3. Salary
4. Bonus 
5. Loan Account or capital account Interest 

Read More: How To File TDS Return

5 Things to Keep in Mind Under Section 194T! 

1. Get TAN: Obtain a tax deduction and collection accounting Number (TAN), if you are not having it. 
2. TDS Deductions: Deduct TDS at a rate of 10% on payments beyond ₹20,000 from April 2025. 
3. TDS Deposits: Make sure the deducted TDS amounts are deposited before the deadline with the government to avoid penalties. 
4. TDS Return Filing: Submit and report TDS returns for every quarter that present complete details of deductions and payments. 
5. TDS Certificates: Issue TDS certificates (Form 16A) to the partners as evidence of tax deductions. 

How does Section 194T impact firms? 

Raises Compliance Burden: 

• 194T applicability establishes a significant compliance burden on the firm and small entities. 
• This new TDS regulation makes it compulsory for the firms to avail a Tax deduction and Collection Account Number (TAN). 
• It also mandates that small entities comply with the specific requirements for depositing and deducting TDS. 
• TDS on partnership firm makes it crucial for firms to maintain rigorous records and strictly adhere to the compliance standards. 

Capital Blocking: 

• Partnership firms may suffer from temporary capital constraints due to its need to surpass TDS of 10% rate on payments above ₹20,000.
• This deduction affects the liquidity of the firms, especially due to delays in receiving funds. 
• To avoid such circumstances, it is mandatory for the firms to strategically manage their cash flows and mitigate all the potential financial risks. 

Tax Credit Adjustments: 

• 194T TDS helps the firms reduce overall tax liability by claiming the deducted TDS. 
• It also helps the firms claim deducted TDS as tax credit while filing a return. 

Also, Learn the complete process of GST registration for a partnership firm and ensure compliance with tax regulations.

194T Applicability Date

The 194T TDS is scheduled to be applicable from 1^st April, 2025. This facilitates an adequate timeline to the firms for preparing and implementing the new TDS requirements. To comply with these updated regulations, companies should set up required systems and processes. 

Difference between Section 192 and Section 194T 

Feature	Section 192	Section 194T
Applicability	It appeals to the payments done by the proprietors to the employees.	It applies to the payments done by banks, financial institutions, and cooperative societies.
Who Deducts the TDS?	An employer or a firm who pays the salary	Banks, Financial Institutions, and cooperative societies.
Beneficiary	Employees who are liable to receive the salary income.	Entities, Firms, and individuals who receive payments above the threshold.
Applicable TDS Rate	Based on the income tax slab rates	Depends on the rates recommended under 194T TDS
Exemption Limit	TDS gets deducted only if income goes above the basic exemption limit.	In case the payment crosses the threshold limit, TDS gets deducted.
TDS Deduction Timing	TDS Gets deducted during the salary payment.	TDS is deducted during credit or payments depending on which is earlier.
Tax Credit Claims	While filing ITRs, employees can adjust the deducted TDS against the tax liabilities.	Under 194T TDS firms or individuals can claim deducted TDS as a tax credit when filing tax returns.

Benefits of Section 194T

1. It helps the firms to keep accurate financial records. 
2. It minimizes the scope of tax evasion and ensures effective tax compliance. 
3. Including partner payments in the TDS amplifies the tax base ensuring the more income lies at the tax collected at source. 

Wrap Up! 

Section 194T aims to ease tax compliance between the partnership firms. Hopefully, our complete guide to the 194T section helps you understand its meaning, benefits, how it is different from section 192, impact on firms, and more. For further query, feel free to connect with us! 

Want to file your TDS returns efficiently? We are here to help you out! Try Munim GST Return Filing software right away and file TDS returns with just a few clicks. 

FAQs

1. What is the threshold limit for section 194T? 

Rs. 20,000 is the threshold limit for TDS on partnership firms. 

2. What is TDS on Partnership Remuneration? 

TDS on partnership remuneration is tax deduction on the payments done in terms of salary, commission, or other remuneration forms by the partnership firms.  

3. Is TDS refundable? 

Yes, if you have paid more tax than the actual amount, you will receive its refund.  

4. Is it mandatory to pay remuneration to the partner? 

Remuneration is applicable only to the partners who actively manage the firm, it can be partially or entirely.