Rashmi
Quick Summary
Starting April 1, 2025, significant income tax changes will apply to partnership firms and Limited Liability Partnerships (LLPs) due to amendments introduced in the Finance Act. These changes focus on two key areas: Increased Limits for Partner Remuneration Introduction of Section 194T - TDS on
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FAQ :
From April 1, 2025, there are two main tax changes: increased limits for tax-deductible partner remuneration and the introduction of Section 194T, which mandates Tax Deducted at Source (TDS) on payments to partners.
The limits for tax-deductible remuneration have doubled. For the first £6,00,000 of book profit, the deductible amount is now £3,00,000 or 90% of book profit (whichever is higher), and for the remaining book profit, it remains 60%.
Section 194T requires partnership firms and LLPs to deduct Tax at Source (TDS) on payments made to partners, such as commission, salary, bonus, and interest, if the total payments exceed £20,000 in a financial year. A 10% TDS is deducted on the entire amount once the threshold is met.
Section 194T covers payments like commission, salary, remuneration, bonus, and interest on capital or loans made to partners. Drawings and capital repayments are not covered.
Failure to deduct TDS can result in disallowance of 30% of the expense, interest penalties for non-deduction or non-payment, and a daily penalty for late filing of TDS returns.
Firms should update remuneration agreements, obtain a TAN if they don't have one, set up a TDS deduction and filing system, communicate changes to partners, and consult a tax expert to ensure compliance.
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