Article
Section 194T – A new compliance frontier for partnership firms and LLPs By Ravi Sawana and Samyak Lohade
The introduction of Section 194T in the Income-tax Act, 1961 represents a pivotal shift in the tax regime governing payments made by partnership firms and LLPs to their partners. According to the authors, the provision which is effective from 1 April 2025, in its current form, presents significant interpretative issues, and the determination of nature of payment by the firm to partner, either at the time of credit or payment, is essential before withholding tax under this section. The article discusses key interpretational challenges and notes that the absence of clear definitions, issues in their application to the different transactions between firm and its partners, and delineation of nature of payments could give rise to inconsistent compliance and increased litigation risk. The authors hence suggest that timely and comprehensive guidance from CBDT is essential to address the ambiguities in scope, timing, and classification of partner payments.
Notifications & Circulars
- Safe Harbour Rules expanded and streamlined
- TDS on payments made by Firms to Partners under Section 194T
- Comprehensive amendments to Tax Audit Report (Form 3CD)
- Aadhaar linking for PAN allotted via Enrolment ID
- TDS exemption on specific schemes under Section 194EE
- Guidelines for Compounding of Offences – FAQs issued
- Interest on TDS/TCS defaults under Sections 201(1A)(ii) and 206C(7) waived in specific cases
Ratio decidendi
- Transfer of leasehold rights constitutes transfer of capital asset under Section 2(14) and Section 50C – Bombay High Court
- Black money – Assessment order to be quashed where the Assessing Officer did not acquire jurisdiction in accordance with law for assessing undisclosed assets and income by issuing a valid notice – ITAT Mumbai
- Private discretionary trusts where income is charged at MMR – Surcharge is to be computed based on slab rates – ITAT Mumbai
- Order passed under Section 139(9) cannot be challenged by way of a writ petition where an alternate remedy exists – Bombay High Court
- Transfer pricing – Unrelated transactions should not be aggregated when no value addition is involved – Delhi High Court
- Reassessment proceedings initiated after approval of the Resolution Plan by NCLT under IBC are invalid; Corporate debtor is eligible to file a writ petition to challenge the proceedings – Calcutta High Court
