Q4 Tax Alert for Partnership Firms: Section 194T Makes Partner Remuneration Planning a Year-End Priority !

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Q4 Tax Alert for Partnership Firms: Section 194T Makes Partner Remuneration Planning a Year-End Priority

With the fourth quarter of FY 2025-26 underway, businesses must now actively focus on tax planning, profitability review, and compliance readiness.

Unlike earlier years, partner remuneration and interest on capital can no longer be treated as last-minute withdrawals due to the introduction of TDS under Section 194T.

This change shifts partnership taxation toward a disciplined, real-time compliance framework.

Why Q4 Planning Has Become Critical

From 1 April 2025, any remuneration, bonus, commission, or interest paid to partners attracts TDS at 10% once the annual threshold of ₹20,000 per partner is crossed.

TDS must be deducted at the time of credit or payment, whichever is earlier.

Therefore, delaying remuneration decisions to March-end may now lead to interest, late fees, and compliance pressure.

Reference: Section 194T, Income-tax Act 1961 (inserted by Finance Act 2024).

Impact on Profitability and Cash-Flow Planning

Earlier, firms could determine allowable remuneration under Section 40(b) at year end without immediate tax deduction.
Now, firms must simultaneously manage:

  • Allowability under Section 40(b)

  • TDS deduction and timely deposit under Section 194T

This creates a direct cash-flow implication in Q4, making advance planning essential.

Reference: Sections 40(b) and 194T, Income-tax Act 1961.

Compliance Actions Required Before Year End

Partnership firms and LLPs should immediately:

  • Estimate FY 2025-26 profits and partner remuneration eligibility

  • Compute TDS liability under Section 194T

  • Deduct and deposit TDS within prescribed due dates

  • Avoid last-minute March transactions causing interest and late fees

Timely compliance ensures smooth financial closure and accurate partner tax credit in Form 26AS/AIS.

Reference: Sections 200, 201 and Rule 31A of Income-tax Rules.

Key Advisory for Q4 Decision-Making

Withdrawal of remuneration or interest on capital is no longer a year-end formality.
It must now be strategically planned, tax-deducted, and compliance-aligned during the last quarter itself.

Early action will help firms:

  • Prevent interest under Section 201(1A)

  • Avoid late filing fees

  • Reduce March-end compliance rush

  • Maintain clean audit and tax records

Conclusion

Section 194T marks a fundamental compliance shift for partnership firms and LLPs.
As Q4 progresses, advance tax planning, timely TDS deduction, and proactive profitability review are essential to ensure error-free closure of FY 2025-26.

Firms that act early will achieve better cash-flow control, seamless compliance, and stronger financial governance.

| www.eaztaxbiz.com | +91 9921010284 |

References

  • Section 194T, Income-tax Act 1961

  • Sections 40(b), 200, 201 and Rule 31A of Income-tax Rules



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