Here’s a structured summary of the key amendments related to deduction on remuneration paid to partners introduced by the Finance Bill 2025, based on the latest updates:
1. Increased Permissible Limits for Partner Remuneration
Amendment: The deduction limit for remuneration paid to working partners under Section 40(b) has been doubled from FY 2025-26 (AY 2026-27) .
| BOOK PROFIT | FY 2024-25 LIMIT | FY 2025-26 LIMIT (REVISED) |
| First ₹3 lakh (or loss) | ₹1.5 lakh or 90% of profit* | ₹3 lakh or 90% of profit* |
| Remaining book profit | 60% of profit | 60% of profit (unchanged) |
Example:
For a book profit of ₹9 lakh:
- FY 2024-25: Max deduction = ₹6.3 lakh [(₹3L × 90%) + (₹6L × 60%)].
- FY 2025-26: Max deduction = ₹7.2 lakh [(₹6L × 90%) + (₹3L × 60%)] .
Conditions:
- Remuneration must be authorized in the partnership deed.
- Only applicable to working partners(not sleeping partners or LLPs) .
2. Introduction of TDS on Partner Remuneration (Section 194T)
New Rule:
From April 1, 2025, firms must deduct 10% TDS on:
- Salary, bonus, commission, or interest paid to partners if annual aggregate exceeds ₹20,000.
Key Points:
- Covered Payments: Remuneration, interest on capital/loans, commissions.
- Exempt Payments: Capital repayments or profit shares .
- Timing: TDS deducted at the earlier of payment or credit to partner’s account.
- Non-Resident Partners: Ambiguity exists on whether Section 194T or 195 applies; CBDT clarification awaited .
Penalties for Non-Compliance:
- 1% monthly interestfor non-deduction.
- 30% disallowanceof the expense .
3. Impact on Tax Planning
- Firms: Must update partnership deeds to reflect revised remuneration limits and ensure TDS compliance .
- Partners: Remuneration remains taxable as “Profits from Business/Profession”, while disallowed amounts are exempt .
Example Scenario:
If a firm pays ₹5 lakh as remuneration (within revised limits):
- Firm: Claims full deduction under Section 40(b).
- Partner: Pays tax on ₹5 lakh, minus TDS of ₹50,000 (if applicable) .
4. Key Exclusions
- LLPs: Section 40(b) does not apply; remuneration rules differ .
- Presumptive Taxation (Section 44AD/ADA): No deduction allowed for partner remuneration .
Summary of Changes
| ASPECT | PRE-2025 | POST-2025 (FINANCE BILL 2025) |
| Remuneration Limit | ₹1.5L/₹3L + 60% | ₹3L/₹6L + 60% |
| TDS on Payments | Not applicable | 10% if >₹20K annually |
| Compliance | Lax | Strict (TDS + deed updates) |
