When it comes to taxation for partnership firms in India, a critical aspect is the treatment of salary paid to partners. With recent updates, there’s often confusion about the applicability of TDS (Tax Deducted at Source) on partner salaries. Let’s understand the TDS on Partner Salary to Firm through this article.
Why is TDS Not Deducted on Partner Salaries?
Due to the form of the partnership, TDS is not withheld from partner salaries. Partners are not considered workers of the firm; instead, they share the company’s revenues and losses.
As a result, any pay or commission provided to them is considered part of their share of the firm’s profit and is taxed appropriately under partnership tax filing rules.
Thus, the revenue is reported on each partner’s tax return as company income rather than salary income.
Taxation of partner salaries under income tax
Even though TDS is not deducted from partner pay, partners must nevertheless report this income on their individual ITR filing. This revenue is taxed as “Income from Business or Profession”.
The tax burden is then determined using the partner’s appropriate tax slab, and they must comply with their tax duties by paying advance tax if necessary or satisfying tax deduction requirements through self-assessment.
How Partner Salaries Are Treated for Tax Purposes
When a partnership provides a salary or commission to its partners, the payments can be deducted from the income taxes of the firm.
This implies that the company can deduct them from its income to lower its overall tax liability.
However, there are a few guidelines to follow:
- The partnership agreement (or “deed”) must specify how much each partner will earn and how their compensation will be computed.
- If these requirements are satisfied, the business may classify the payments to partners as legitimate costs.
This system is advantageous because it allows the company to properly manage its taxes without having to deduct TDS (Tax Deducted at Source) from payments made to partners.
Learn More: TDS on provision for salary
When is TDS Return Filing Important for Partnership Firm?
To be compliant, partnership firms must file corporate tax returns, do TDS return filing and deduct TDS on other payments, such as those made to contractors and employees.
Other Important Information for TDS Return Filing for Partnership Firm
| Category | Details |
| Late Filing Penalty | – ₹1,000 for total income up to ₹5 lakh. – ₹5,000 for total income over ₹5 lakh. – Additional interest of 1% per month on unpaid taxes under Section 234A. |
| Interest Penalty on Advance Tax | – Partners must pay advance tax if tax liability exceeds ₹10,000.
– Interest for late payment under Sections 234B and 234C may apply. |
| Key Forms for Tax Filing |
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| Penalty for Late TDS Filing | – ₹200 per day until the return is filed, applicable under Section 234E, up to the total amount of TDS due. |
Moreover, If you want any other guidance relating to TDS on Partner Salary to Firm, please feel free to talk to our business advisors at 8881-069-069.
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