April 1, 2025 brought some of the most significant changes to India's TDS (Tax Deducted at Source) framework in years. New sections were introduced, old ones removed, and threshold limits revised across the board. If your business makes payments to employees, vendors, partners, or contractors, these changes affect your monthly TDS obligations directly.
The Finance Act, 2025 amended India's TDS and TCS framework with a dual objective: simplifying compliance for businesses and widening the tax net for previously under-taxed payment streams. The net effect for most businesses is fewer sections to track (several removed) but a new obligation on partner payments that many firms were unprepared for.
This is the most consequential new provision for partnership firms, LLPs, and their partners. Section 194T, effective April 1, 2025, requires every firm/LLP to deduct TDS at 10% on payments to partners exceeding ₹20,000 per financial year. This covers all forms of partner remuneration — salary, bonus, commission, interest on capital, and any other payment to partners.
If your firm pays salary, interest, or commission to partners and the aggregate exceeds ₹20,000 annually per partner, you must deduct TDS at 10% effective April 2025. Many firms missed this in Q1 FY 2025-26. Non-deduction attracts interest under Section 201(1A) and penalty under Section 271C.
Partners receiving such payments must account for this TDS in their personal ITRs. The TDS will be reflected in Form 26AS and AIS under the partner's PAN. Partners who were receiving distributions without tax should now expect net-of-TDS receipts.
| Section | Payment Type | Old Threshold | New Threshold | Rate |
|---|---|---|---|---|
| 194A | Interest (Banks) | ₹40,000 | ₹50,000 | 10% |
| 194A | Interest (Others) | ₹5,000 | ₹10,000 | 10% |
| 194B | Lottery / Crossword winnings | ₹10,000 | ₹10,000 | 30% |
| 194C | Contractor payments | ₹30,000 single / ₹1L aggregate | ₹30,000 single / ₹1L aggregate | 1%/2% |
| 194D | Insurance commission | ₹15,000 | ₹20,000 | 5% |
| 194G | Commission on lottery | ₹15,000 | ₹20,000 | 5% |
| 194H | Commission/Brokerage | ₹15,000 | ₹20,000 | 5% |
| 194-I | Rent | ₹2.4L p.a. | ₹6L p.a. | 2%/10% |
| 194J | Professional/Technical fees | ₹30,000 | ₹50,000 | 2%/10% |
| 194T | Partner payments (NEW) | Nil (new section) | ₹20,000 | 10% |
The TDS threshold for rent payments has been raised from ₹2.4 lakh per year (₹20,000/month) to ₹6 lakh per year (₹50,000/month). This relieves a large number of small business owners and individuals paying office or shop rent from the obligation to deduct TDS.
This provision, which required sellers of goods to collect TCS at 0.1% on sales exceeding ₹50 lakh to a single buyer, was notorious for creating dual compliance obligations with Section 194Q (buyer's TDS on purchases). The two sections overlapped and caused widespread confusion. Section 206C(1H) has been completely removed from April 1, 2025. Sellers no longer need to collect TCS on goods sold. Section 194Q (buyer's TDS on purchases above ₹50 lakh) continues.
These sections required businesses to check whether their deductees/collectees had filed income tax returns for the past two years and levy a higher TDS/TCS rate (double or 5%, whichever was higher) if they hadn't. Maintaining the "specified person" list was a significant compliance burden. Both sections are removed from April 1, 2025. TDS and TCS rates now apply uniformly regardless of whether the recipient has filed returns.
The threshold for TCS under Section 206C(1G) on remittances under the Liberalised Remittance Scheme (LRS) and foreign tour packages has been increased to ₹10 lakh per year from the earlier ₹7 lakh. More importantly, TCS on LRS for education purposes financed through an education loan is now fully exempt. Section 206C(1G) covering TCS on educational loans has been removed.
| Obligation | Due Date |
|---|---|
| Monthly TDS Deposit (April–February) | 7th of following month |
| Monthly TDS Deposit (March) | April 30 |
| Q1 TDS Return (Form 24Q/26Q) | July 31 |
| Q2 TDS Return | October 31 |
| Q3 TDS Return | January 31 |
| Q4 TDS Return | May 31 |
| Form 16 (Salary TDS Certificate) to employees | June 15 |
| Form 16A (Other TDS certificates) | 15 days from TDS return due date |
Late deduction: Interest @ 1% per month from date of deductibility. Late payment after deduction: Interest @ 1.5% per month. Late TDS return filing: ₹200 per day (up to tax amount). Penalty under Section 271C: Up to 100% of TDS amount for failure to deduct.
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