My query pertains to the applicability of Section 194T of the Income Tax Act. The relevant facts are as under:
One of my friends is carrying on business through a partnership firm in which he and his father are the only partners, sharing profits equally in the ratio of 50:50.
During the Financial Year 2025–26, the firm has paid:
- Interest of ₹4,00,000 to each partner; and
- Remuneration of ₹6,00,000 to each partner.
Accordingly, the total income in the hands of each partner, comprising interest and remuneration, amounts to ₹10,00,000.
Based on the above, the individual tax liability of each partner is effectively nil. However, if tax is deducted at source under Section 194T on the aforesaid payments, the same would result in a refund situation for the partners.
In this context, I seek clarification as to whether there exists any legally permissible method to avoid or dispense with the requirement of deduction of tax at source under Section 194T, or whether the firm is mandatorily required to deduct such tax and the partners may thereafter claim a refund.
CAclubindia
