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 TDS on payment of salary, remuneration, interest, bonus or commission by partnership firm to partners

Presently there is no provision for deduction of tax at source (TDS) on payment of salary, remuneration, interest, bonus, or commission to partners by the partnership firm. The Finance Bill, 2024 proposes to insert a new TDS section 194T to bring payments such as salary, remuneration, commission, bonus and interest to any account (including capital account) of the partner of the firm under the purview of TDS. However, no such TDS will be required to be made if the aggregate amount does not exceed Rs 20,000 in the financial year.

The proposed section 194T is extracted as follows: :

"194T. (1) Any person, being a firm, responsible for paying any sum in the nature of alary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner(including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-tax thereon at the rate of ten per cent.

(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year.".

[Emphasis added]

Applicable TDS rate will be 10%.

The above proposed amendment will be effective from 1st April, 2025 (i.e. from Assessment Year 2025-26 and onwards)., unlike various other proposed amendments to TDS provisions which would be effective from 1st October, 2024.

NOTE: Payment to a partner may consist of any one or more of the salary, remuneration, commission, bonus or interest. Individually such payments may be less than twenty thousand rupees. But for the purposes of TDS, all such payments will have to be aggregated.

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