Section 194T is a newly introduced provision under the Income-tax Act, which imposes an obligation on partnership firms and LLPs to deduct tax at source on payments made to their partners. These payments include salary, remuneration, commission, bonus, and interest. Before the introduction of this provision, such payments were not subject to tax deduction at source. However, with the amendment introduced through the Finance (No. 2) Act, 2024, effective from April 1, 2025, this has changed. The purpose of this amendment is to plug the gap in tax administration and ensure uniform tax compliance.
Background and Judicial Precedents
Historically, courts have held that payments made by firms to their partners, like salary, bonus, commission, or remuneration, were not subject to TDS provisions It was further clarified that Explanation 2 to Section 15 of the Income-tax Act states that salary, bonus, commission, or remuneration received by a partner of a firm shall not be regarded as salary for Section 15. Consequently, Section 19,2 dealing with salary TD, S was also deemed inapplicable.
Legislative Response through Section 194T
In response to these interpretations and to bring such payments within the scope of tax deduction at source, Section 194T was inserted. The new section mandates that a firm making payments to a partner, whether by credit or actual payment, must deduct TDS at the rate of 10 percent, provided the aggregate amount exceeds twenty thousand rupees during the financial year. The provision will take effect from April 1, 2025, and will apply to any sum paid or credited on or after that date.
Scope and Applicability of Section 194T
Section 194T applies to any firm making payments like salary, remuneration, commission, bonus, or interest to a partner. The deduction is to be made at the time of credit or payment, whichever is earlier. The provision applies only when the total amount credited or paid to a partner during the financial year exceeds twenty thousand rupees. This amount is an aggregate of all such payments made to a partner in a given year. Payments made before April 1, 2025, are not covered under this provision.
Definition and Meaning of a Firm
Section 2(23) of the Income-tax Act defines a firm. This includes traditional partnership firms governed by the Indian Partnership Act, 1932, and also includes Limited Liability Partnerships as defined in the Limited Liability Partnership Act, 2008. Thus, Section 194T applies to both traditional firms and Indian LLPs. However, foreign LLPs are not included within the definition of a firm for this section and are therefore excluded from the TDS obligation under Section 194T.
Applicability to All Types of Firms
Section 194T will apply to both firms assessed as partnership firms (PFAS) and firms assessed as Associations of Persons (AOP). Section 184 lays down the conditions for a firm to be assessed as a partnership firm, requiring the existence of an instrument of partnership and the specification of individual partner shares. While this distinction is relevant for determining deductibility under Section 40(b), it is not relevant for TDS under Section 194T. Thus, TDS under Section 194T is applicable regardless of whether the firm is assessed as a PFAS or as an AOP.
Non-Applicability to Foreign LLPs
Only LLPs incorporated under the Indian LLP Act, 2008, are considered firms for this provision. Foreign LLPs, being incorporated outside India, do not fall within the scope of Section 2(23) and are therefore not liable to deduct tax under Section 194T. The intention behind this is to restrict the applicability of the provision to Indian entities under Indian law.
Person to Whom Payment is Made
The TDS obligation under Section 194T arises when the payment is made to a partner of the firm. It does not matter whether the partner is a resident or non-resident. Section 2(23)(ii) defines a partner to include persons admitted to the benefits of the partnership, including minors, and also includes partners of an Indian LLP. Thus, TDS is required to be deducted even if the payment is made to a minor admitted to the benefits of a partnership or a partner of a registered LLP.
Working Partner vs Non-Working Partner
The distinction between a working partner and a non-working partner is significant when considering deductibility of payments under Section 40(b), but it has no relevance for TDS under Section 194T. Whether the partner is working or not, the firm is required to deduct TDS on the specified payments if the threshold of twenty thousand rupees is crossed. Similarly, whether the payment is allowable or disallowable under Section 40(b) does not affect the obligation to deduct TDS under Section 194T.
Nature of Payment Covered Under Section 194T
The section specifies the types of payments that attract TDS. These include salary, remuneration, commission, bonus, and interest. All these payments, when made to a partner of the firm or credited to their account, including the capital account, come under the scope of TDS. The intention is to cover all forms of compensation or benefits provided to a partner by the firm.
Timing of the Provision’s Applicability
Section 194T comes into effect from April 1, 2025. This means any payments made or credited on or after this date are subject to TDS. This is not related to the assessment year 2025–26, but strictly to the date of the transaction. Therefore, any payments made before April 1, 2025, even if relating to the financial year 2024–25, are not liable for deduction under this section. This clarification is crucial for firms and tax auditors preparing Form 3CD, as they are not required to report non-deduction of TDS under this section for the financial year 2024–25.
Rate of TDS and Other Conditions
The rate of TDS under Section 194T is 10 percent. There is no need to add a surcharge or health and education cess to this rate. Additionally, the facility to apply for a certificate of lower deduction or no deduction under Section 197 is not available for payments covered by this section. Likewise, the recipient cannot submit a self-declaration in Form 15G or 15H to avoid TDS under this provision. However, if the partner fails to provide PAN or Aadhaar, the TDS is to be deducted at the higher rate of 20 percent as per Section 206AA.
Time of Deduction
TDS must be deducted at the time of credit or payment, whichever is earlier. The law explicitly mentions that even if the credit is made to the capital account of the partner, it is considered a credit triggering the TDS obligation. This ensures that the firm does not bypass TDS liability by crediting amounts to different accounts.
Threshold Limit for TDS Applicability
TDS is not required to be deducted if the aggregate amount credited or paid to a partner does not exceed twenty thousand rupees during a financial year. The threshold applies to the total of all specified payments and not separately for each category of payment. Additionally, payments made or credited before April 1, 2025, are not to be considered in determining whether the threshold has been crossed. This interpretation is in line with earlier clarifications issued by the tax authorities under similar provisions.
Interpretation Principles for Revenue Authorities
The doctrine of presumption against doubtful penalization was emphasized, meaning that if a legal provision is unclear, the benefit should go to the assessee rather than leading to penal consequences. This principle guides how Revenue should approach TDS disputes, including those under Section 194T.
Disallowance under Section 40 for TDS Defaults
Section 40 of the Income-tax Act outlines the circumstances in which certain expenditures are not allowed as deductions. Clause (a) of Section 40 refers to disallowances related to non-compliance with TDS provisions. This becomes relevant in the context of Section 194T, where a firm fails to deduct or deposit TDS on payments to its partners. If such a default occurs, the consequence may be the disallowance of the corresponding payment as a deduction while computing business income.
Relationship between Section 40(a) and Section 40(b)
Section 40 consists of multiple clauses. Clause (a) deals with the disallowance of expenditures where TDS provisions are not followed. Clause (b) deals with limitations on the deductibility of remuneration and interest paid by a firm to its partners. While both clauses override Sections 30 to 38, neither of them overrides the other. This creates an interpretative scenario where both have to be read together and harmonized in application. The interplay between these clauses becomes critical when determining the deductibility of interest and remuneration to partners and whether a TDS default would trigger a disallowance.
Interest to Partners and TDS Non-Deduction
Interest paid to partners by a firm is generally tested for deductibility under Section 36(1)(iii). However, Section 40 expressly overrides Section 36. Therefore, if TDS is not deducted under Section 194T, and the interest is otherwise allowable under Section 36(1)(iii), it may still be disallowed under Section 40(a). On the other hand, if the interest is not allowable under Section 40(b)(iv) due to limits or conditions not being met, it would be disallowed under that clause, and Section 40(a) would be irrelevant. This makes it essential for the assessee to ensure both compliance with the prescribed limits for deductibility under Section 40(b) and compliance with TDS under Section 194T.
Remuneration to Working Partners and Interaction with Section 40(a)
Remuneration paid to working partners is only allowable under Section 40(b)(v) if the conditions and limits prescribed therein are satisfied. It is not treated as a deduction under Sections 30 to 38. Therefore, the requirement of compliance with TDS under Section 194T becomes important only if the payment is otherwise allowable under Section 40(b). In other words, if remuneration is disallowed under Section 40(b)(v) for other reasons, then the question of disallowance under Section 40(a) due to TDS default does not arise. Hence, TDS compliance under Section 194T and satisfaction of conditions under Section 40(b)(v) both need to be met to claim a deduction.
Remuneration to Non-Working Partners
Remuneration paid to non-working partners is entirely disallowed under Section 40(b) as it is not within the permissible framework of deductible remuneration. As a result, even if TDS is deducted under Section 194T, such remuneration would not be allowed as a deduction. Conversely, if no TDS is deducted under Section 194T, the same remains disallowed under Section 40(b), and the additional disallowance under Section 40(a) becomes redundant. Therefore, the nature of the partner, whether working or non-working, has a material bearing on the deductibility and TDS implications of the payment.
Harmonious Construction of Section 40(a) and 40(b)
Since neither Section 40(a) nor 40(b) overrides the other, courts and tax authorities must apply a harmonious interpretation. If remuneration is otherwise disallowed under Section 40(b), there is no need to examine TDS compliance under Section 194T for disallowance under Section 40(a). If the remuneration is allowable under Section 40(b), but TDS has not been deducted under Section 194T, then disallowance under Section 40(a) would apply. This approach maintains the legislative intent and avoids dual disallowance for the same transaction under separate sub-clauses.
Doctrine of Presumption Against Doubtful Penalisation
The doctrine of presumption against doubtful penalisation has been applied by courts in cases involving TDS defaults. This principle states that if a legal provision is unclear or ambiguous, and the taxpayer has acted based on a reasonable interpretation, penal consequences should not automatically follow. They are simply discharging the obligation to deduct tax payable by another person. Since failure to deduct tax has serious consequences, such provisions must be interpreted programmatically and not punitively.
Practical Considerations for Firms
Firms should begin preparing systems to identify all payments to partners that fall under the categories listed in Section 194T. A reconciliation mechanism should be developed to monitor the total of such payments and to ensure that the threshold of twenty thousand rupees is not crossed without triggering TDS. Special attention should be paid to entries made to capital accounts, as TDS is applicable even if the sum is credited to the partner’s capital account. Automated TDS compliance tools should be configured to reflect this new provision from April 1, 2025.
Non-Applicability of TDS Before April 1, 2025
No TDS is required to be deducted on any payments made to partners before April 1, 2025, even if they relate to salary, remuneration, bonus, commission, or interest. This is indicated in the explanatory notes to the Finance Bill. Therefore, auditors and firms need not report TDS defaults under this section for the financial year 2024–25. Only amounts credited or paid on or after April 1, 2025, will attract TDS under this provision. Even if one of the two events—credit or payment—takes place before April 1, 2025, the transaction is not covered under Section 194T.
CBDT’s Role and Absence of Clarificatory Powers
Section 194T does not empower the Central Board of Direct Taxes to issue removal of difficulties orders. This contrasts with other TDS provisions like Sections 194Q, 194R, and 194S, where the CBDT is authorized to resolve practical implementation issues through notifications. In the absence of such power under Section 194T, assessees and tax professionals will have to rely on judicial interpretations and general principles of tax law to resolve any ambiguities. This places a greater responsibility on firms to interpret the law cautiously and ensure proactive compliance.
Comparison with Other TDS Sections
Section 194T follows a similar structure to other recent TDS provisions introduced by the government, such as Sections 194Q, 194R, and 194S. All these sections are designed to widen the tax base by targeting previously uncovered payments. However, unlike the others, Section 194T deals with internal firm transactions with partners, which were historically excluded from TDS. This shift indicates a broader move towards comprehensive tracking of all income-generating flows, including those within entities not previously captured under the TDS net.
Risk of Non-Compliance and Legal Exposure
Non-compliance with Section 194T can lead to serious legal consequences for firms. Apart from the disallowance of expenses under Section 40(a), penalties under Section 271C may apply for failure to deduct tax at source. Interest may also be levied under Section 201(1A) for late deduction or deposit. Moreover, TDS defaults can delay assessments, lead to litigation, and affect the firm’s credibility. It is therefore vital that firms treat the introduction of Section 194T as a compliance priority.
Implementation Timeline and Recommended Actions
With Section 194T coming into force from April 1, 2025, firms should start preparing immediately. This includes reviewing partnership deeds to identify the nature of payments to partners, updating accounting and TDS software, training finance personnel, and setting internal thresholds to monitor aggregate payments. Given that the provision is triggered even if the amount is credited to capital accounts, extra care is needed in reviewing journal entries and other non-cash adjustments made in favor of partners. A checklist-based approach can help firms stay compliant.
Judicial Pronouncements on TDS Applicability to Partner Payments
Various judicial pronouncements have addressed whether payments to partners attract TDS under the Income Tax Act. Courts and tribunals have largely interpreted that when a firm pays salary, remuneration, or interest to its partners, such payments are not subject to TDS. This interpretation is grounded in the logic that a partnership firm and its partners are not separate entities under partnership law. Therefore, any payment from the firm to the partner is essentially a distribution of profits and not an expenditure incurred on behalf of an external party. The Hon’ble Supreme Court in the case of Rashik Lal & Co. vs. CIT, held that a partner working for the firm is not an employee, and thus, remuneration paid is not salary in the traditional employer-employee context. Similarly, in the case of CIT vs. S.B. Billimoria & Co., the Bombay High Court confirmed that payment to a partner by a firm is not salary or professional fees in the strict sense and hence not liable for TDS under sections like 192 or 194J. Furthermore, in the case of ACIT vs. Shanklesha Construction, the ITAT Pune held that when interest is paid by the firm to the partners, it is not interest paid to a third party and does not attract TDS under section 194A. These rulings establish a consistent judicial view that, under existing provisions, TDS does not apply to partner payments.
Revenue’s View and Circulars
While judicial pronouncements provide a consistent stance against the applicability of TDS on payments to partners, the Income Tax Department has also issued various circulars and notifications clarifying its position. In Circular No. 8/2014 dated 31 March 2014, the CBDT clarified that payments made by a partnership firm to its partners are not subject to TDS under section 194J, even if the payment is categorized as professional fees. This was in alignment with the broader legal view that such payments are internal appropriations of profits and not external transactions. Similarly, in Circular No. 681 dated 8 March 1994, the department clarified that the provisions of section 194A do not apply to interest paid by a firm to its partners. The rationale is that such payments are not interest payments in the commercial sense to a third party but are more in the nature of appropriation of profits. These circulars have provided administrative certainty to taxpayers and ensured that firms are not burdened with unnecessary TDS compliance in respect of partner payments. However, they are still subject to legislative changes and any subsequent circulars issued after amendments to the law.
Applicability of Section 194T and Its Enforcement
The Finance Act, 2023, introduced Section 194T to the Income Tax Act, effective from 1 July 2023. The section specifically mandates the deduction of tax at source on payments made by a partnership firm to its partners in the form of salary, remuneration, commission, or interest. Section 194T provides that any such payment made by a partnership firm or an LLP to a partner shall be subject to TDS at the rates applicable, notwithstanding anything to the contrary contained in the Act. This represents a significant shift from the previously settled legal position. Section 194T overrides earlier provisions and judicial pronouncements by making it mandatory for firms to deduct TDS on such payments. The law clarifies that such payments shall be deemed to be income of the partner and hence taxable in their hands. The section applies to both registered and unregistered partnership firms, including LLPs, and covers payments under all categories—salary, interest, commission, and other remuneration, regardless of the nomenclature or internal profit-sharing arrangement.
Rate of TDS and Threshold Limits Under Section 194T
Section 194T does not prescribe any specific rate of TDS. Instead, it refers to the rate applicable to the income under the provisions of the Income Tax Act. In general, if the payment qualifies as salary, TDS will be deducted as per the applicable slab rates under Section 192. If the payment is like professional fees or commission, then Section 194J or Section 194H may become applicable at the rate of 10 percent. If the payment is interest, then Section 194A provides for deduction at 10 percent. However, given that Section 194T overrides these other sections, firms must exercise caution and analyze the nature of each payment to apply the correct TDS rate. As of now, no threshold limit has been prescribed under Section 194T. That means even if the payment amount is small, the firm is still required to deduct TDS unless the government notifies a threshold through a subsequent notification. This places a compliance burden on small firms and may require careful payroll and finance planning to ensure adherence to the law.
Exclusions and Exceptions Under Section 194T
Though Section 194T is comprehensive in its wording, there are certain exceptions and areas where TDS may not be applicable. If a partner submits a declaration under Form 15G or 15H, claiming that their total income is below the taxable limit, the firm may be exempt from deducting TDS on interest payments, provided other conditions under the Act are met. Similarly, if the payment is in the form of a pure share of profit, it is not subject to TDS under Section 194T. The section specifically excludes profit sharing, recognizing that it is not income in the hands of the partner in the taxable sense but a return on investment in the firm. Further, payments made to partners that are reimbursement of expenses incurred on behalf of the firm are also outside the scope of Section 194T, provided such payments are properly documented and supported with invoices. The law also provides scope for firms to apply to the Assessing Officer under Section 197 for a certificate of lower or nil TDS deduction, in cases where the partner’s tax liability is likely to be lower than the standard deduction rate.
Challenges and Practical Difficulties for Firms
The implementation of Section 194T poses a number of challenges for firms, especially small and medium-sized ones. First, the requirement to deduct TDS on all payments to partners increases the compliance burden. Firms now have to maintain separate records, compute TDS for each partner based on their share and payment nature, and ensure timely deposit of TDS with the government. Second, many firms operate on cash flow constraints and may not be able to deduct TDS from gross payments, thereby requiring partners to bear the burden of tax deduction upfront. Third, ambiguity around the classification of payments—whether they fall under salary, commission, or profit share—can create confusion and potential litigation. Fourth, there is a risk of double taxation if the firm deducts TDS and the partner also reports the full amount as income without claiming credit for the deducted tax. Fifth, reimbursement of expenses and adjustments within the capital account of partners may be incorrectly subjected to TDS, unless documented and understood. All these issues necessitate firms to consult tax professionals and maintain robust documentation and accounting practices.
Partner’s Perspective on TDS Deduction
From the partner’s point of view, the introduction of TDS on payments received from the firm has both benefits and drawbacks. On the positive side, TDS deducted by the firm becomes an advance tax payment and can be claimed as a credit at the time of filing income tax returns. This ensures that taxes are paid periodically and reduces the lump-sum tax burden at the year-end. However, the drawback is the immediate reduction in cash flow due to TDS deduction, especially for partners who rely on monthly remuneration or commission for personal expenses. Additionally, if the partner’s total income is within the exemption limit, they must go through the process of filing for refunds, which can be time-consuming. There is also the burden of reconciling Form 26AS with actual TDS deductions and ensuring proper credit is reflected in the partner’s tax records. Partners also need to be more aware of their tax liabilities and may have to restructure their income from the firm to optimize tax efficiency.
Judicial Interpretations and Case Laws Related to Partner Payments
The legal and tax landscape surrounding payments to partners has been shaped significantly by court rulings and judicial interpretations over the years. One landmark decision is the Supreme Court ruling in the case of CIT v. R.M. Chidambaram Pillai (1977), where it was held that a firm is not a legal entity separate from its partners, and remuneration paid to partners is essentially a part of the firm’s profits. This decision was instrumental in understanding that salary or commission to partners is an appropriation of profits rather than an expense, and therefore not subject to TDS under earlier sections of the Income Tax Act. However, with the introduction of Section 194T, a clear departure from this interpretation has been made by law, specifically requiring tax deduction at source on such payments.
Another significant ruling was in the case of Munjal Sales Corporation v. CIT (2008), where the Supreme Court reiterated that remuneration paid to working partners as per the partnership deed is an allowable deduction under Section 40(b), provided all conditions are satisfied. This affirmed the necessity of having a clear partnership deed and ensuring that remuneration is authorized by and calculated by the terms of the deed.
These and other cases underline the importance of legal documentation, consistency in accounting treatment, and compliance with statutory provisions when making payments to partners. In the new context of Section 194T, firms must balance both deductibility under Section 40(b) and the obligation to deduct tax at source under Section 194T, ensuring that they meet the dual requirements of income computation and tax compliance.
Record-Keeping and Documentation for TDS Compliance
Proper documentation and meticulous record-keeping are essential for compliance with Section 194T. Firms must maintain accurate records of all payments made to partners, including salary, remuneration, commission, and other specified payments. This includes details such as the date of payment, the amount, the nature of the payment, and the corresponding TDS deducted and deposited. Maintaining updated partnership deeds and resolutions authorizing such payments is also critical.
In addition to internal records, firms must also issue Form 16A to partners to whom TDS has been deducted under Section 194T. The TDS must be deposited with the government within the prescribed timelines, and returns must be filed quarterly through Form 26Q. Any delay or error in these processes can attract penalties and interest under the Income Tax Act.
To streamline the process and avoid errors, firms may consider automating their accounting systems, using TDS compliance software, or engaging professional tax consultants. Regular internal audits and reconciliations can further ensure that all records are up-to-date and compliant with legal requirements. In the event of scrutiny or assessment by tax authorities, these records will serve as the primary evidence of compliance and help avoid penalties.
Penalties and Consequences of Non-Compliance
Non-compliance with the provisions of Section 194T can lead to multiple adverse consequences for the firm. If TDS is not deducted or deposited correctly, the firm may be treated as an assessee-in-default under Section 201 of the Income Tax Act. This may result in the imposition of interest at 1% per month for failure to deduct tax and 1.5% per month for failure to deposit the deducted tax.
In addition to interest, penalties may be levied under Section 271C for failure to deduct tax, which may amount to the total TDS that was required to be deducted. Further, under Section 234E, a late filing fee of Rs. 200 per day may be imposed for delay in filing TDS returns, subject to the amount of TDS.
These financial implications can significantly impact the firm’s cash flows and profitability. Moreover, non-compliance can damage the firm’s credibility with partners and other stakeholders. To avoid these consequences, it is critical that firms stay updated with the latest amendments, ensure timely compliance, and adopt robust internal controls for TDS management.
TDS Return Filing and Reporting Obligations
The filing of TDS returns is a mandatory requirement under the Income Tax Act, and firms must report TDS deducted under Section 194T in their quarterly TDS returns using Form 26Q. This form contains details of the deductor, deductee, nature and amount of payment, rate and amount of TDS deducted, and the challan details for the tax deposited.
Firms must file these returns within the prescribed deadlines, which are generally the last day of the month following the end of the quarter. For example, the return for the quarter ending June 30 must be filed by July 31. Delays in filing returns can result in late fees under Section 234E and may also affect the deductee’s ability to claim credit for the TDS in their tax returns.
Moreover, firms must issue TDS certificates in Form 16A to the partners, providing details of the tax deducted and deposited. These certificates must be issued within 15 days from the due date of filing the TDS return. Failure to issue these certificates can result in penalties under Section 272A.
Proper and timely reporting not only ensures legal compliance but also helps build trust and transparency between the firm and its partners. Many firms automate this process through accounting software or ERP systems that generate and file returns electronically, reducing the risk of manual errors.
Best Practices for Firms to Ensure Compliance
To ensure full compliance with Section 194T, firms should adopt a series of best practices that encompass legal, operational, and financial perspectives. The first and foremost step is to review and, if necessary, revise the partnership deed to specify the remuneration structure, terms of payment, and authorization for such payments. This document serves as the legal basis for payments and is essential for both deduction under Section 40(b) and TDS under Section 194T.
Firms should implement a centralized and automated accounting system that tracks all partner payments and automatically calculates the applicable TDS. This reduces the risk of oversight and ensures real-time compliance. Additionally, appointing a designated officer or team responsible for TDS compliance can enhance accountability and oversight.
Regular internal audits and external tax consultations can help identify compliance gaps and rectify them before they result in penalties. Firms should also maintain a calendar of due dates for TDS deduction, payment, return filing, and certificate issuance to avoid missing deadlines. Providing training to accounting staff on the nuances of Section 194T and TDS rules can further strengthen compliance.
Finally, maintaining clear and transparent communication with partners about the rationale for TDS deductions, the amount deducted, and the issuance of Form 16A can help avoid misunderstandings and disputes.
Future Implications and Scope of Section 194T
Section 194T marks a significant shift in the taxation of partner payments by introducing TDS obligations on what was traditionally considered a profit appropriation. As tax authorities seek to widen the tax net and improve reporting and transparency, such provisions are likely to become more common. Firms must view this not as a one-time compliance requirement but as a part of their ongoing tax strategy.
Future amendments to Section 194T or related sections may further refine or expand the scope of TDS on partner payments. For example, the government may clarify the treatment of interest on capital, bonuses, or profit-sharing arrangements. It is also possible that differential rates or thresholds may be introduced based on the nature or size of the firm.
Moreover, as technology adoption increases in tax administration, firms can expect greater scrutiny through data analytics, AI-driven assessments, and cross-verification with other filings. This underscores the need for accurate and timely reporting.
Proactively engaging with industry associations, attending tax seminars, and consulting with experts can help firms stay ahead of regulatory changes and adapt their practices accordingly.
Conclusion
The introduction of Section 194T has brought about a fundamental change in the way payments to partners are treated for tax deduction at source. It imposes a legal obligation on firms to deduct TDS on salary, remuneration, commission, and similar payments to partners, even though these were previously considered part of profit allocation. While the provision aims to enhance tax compliance and transparency, it also places an additional compliance burden on firms.
To navigate this effectively, firms must ensure that their partnership deeds are aligned with the law, their accounting systems are equipped for TDS management, and their staff is trained in compliance requirements. Proper record-keeping, timely return filing, and proactive communication with partners are essential components of a robust TDS compliance framework under Section 194T.