Effective from 1st April 2025, the Income Tax Act introduces a new compliance requirement under Section 194T for payments made to partners. If a firm makes payments such as salary, bonus, commission, or interest to its partners exceeding ?20,000 during a financial year, it will be liable to deduct TDS (Tax Deducted at Source) at the rate of 10%.

Key Highlights and Why Act Now?

Key Highlights:

Applicability:

·         The provision applies to all firms, regardless of their turnover or whether they are subject to audit.

·         This is a significant update, as even small and medium-sized firms will now need to comply with these TDS deduction norms.

Purpose:

·         The introduction of Section 194T ensures that accurate tax compliance is maintained.

·         It aims to prevent the non-deduction of TDS on payments made to partners, thereby enhancing tax collection at source.

Why Act Now?

Avoid Penalties and Interest:

·         Non-compliance with the TDS deduction under this section can lead to hefty penalties and interest charges.

·         Failing to deduct TDS and deposit it on time can result in additional financial burden.

·         Ensure Timely Application for TAN:

o   Firms need to apply for a TAN (Tax Deduction and Collection Account Number), which is essential for deducting TDS.

o   If your firm does not already have a TAN, it’s crucial to apply for it well in advance to meet the legal requirements by 1st April 2025.

What Should Firms Do?

What Should Firms Do?

Assess Partner Payments:

·         Review the payments made to partners throughout the financial year.

·         Ensure that any payments exceeding ?20,000 are subject to TDS deduction.

·         Apply for TAN:

o   If your firm does not already have a TAN, apply for it as soon as possible to avoid any last-minute rush.

·         Timely Deduction and Deposit:

o   Deduct the 10% TDS on applicable payments and deposit the amount with the government within the prescribed time limits.

o   Timely compliance is key to avoiding penalties.

Don’t Delay – Ensure Compliance Today!

The introduction of Section 194T is a step towards better tax governance and compliance. By adhering to the new regulations, firms can ensure that they are in full compliance with the law, avoiding unnecessary penalties and legal issues.