TDS & TCS Updates Effective from 1st April 2025: Changes in Partner’s Remuneration and Enhanced TDS Thresholds

Chirayu Joshi
Apr 8
2 min read

As of April 1, 2025, significant amendments to India's Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) regulations have been implemented, directly impacting partnership firms, Limited Liability Partnerships (LLPs), and individual taxpayers. These changes aim to enhance tax compliance, streamline processes, and provide relief to taxpayers.

Introduction of Section 194T: TDS on Payments to Partners

The Finance Act 2024 introduced Section 194T, effective from April 1, 2025, mandating partnership firms and LLPs to deduct TDS on specific payments made to their partners.

Key Provisions of Section 194T:

Applicable Payments: Salary, remuneration, interest, bonus, or commission paid to partners.
Threshold Limit: TDS applies if the aggregate payments to a partner exceed ₹20,000 in a financial year.
TDS Rate: 10% on the total amount once the threshold is surpassed.
Timing of Deduction: At the time of credit to the partner's account (including capital account) or actual payment, whichever occurs first.

This move aims to bring transparency and accountability to financial transactions between firms and their partners.

Enhanced TDS Threshold Limits

To reduce the compliance burden and provide relief to taxpayers, the government has revised TDS threshold limits across various sections:

Interest on Securities (Section 193): Threshold increased from NIL to ₹10,000.
Dividends (Section 194): Threshold increased from ₹2,500 to ₹5,000.
Interest other than Interest on Securities (Section 194A):
- For senior citizens: Increased from ₹50,000 to ₹1,00,000.
- For others: Increased from ₹40,000 to ₹50,000.
Rent (Section 194-I): Threshold increased from ₹1,80,000 to ₹2,40,000.
Commission or Brokerage (Section 194H): Threshold increased from ₹15,000 to ₹20,000.

These adjustments are designed to exempt smaller transactions from TDS, thereby simplifying compliance and improving cash flow for taxpayers.

Changes in TCS Provisions

The following amendments have been made to TCS regulations:

Overseas Remittance under Liberalized Remittance Scheme (LRS): Threshold for TCS increased from ₹7 lakh to ₹10 lakh.
Educational Remittances: TCS is now exempted on remittances for educational purposes if funded through an educational loan.
Removal of Section 206C(1H): TCS on the sale of goods exceeding ₹50 lakh in a financial year has been abolished, reducing compliance complexities for businesses.

These changes aim to facilitate ease of doing business and reduce the tax burden on individuals and entities.

Implications for Taxpayers and Businesses

The introduction of Section 194T necessitates that partnership firms and LLPs update their accounting systems to incorporate TDS deductions on partner payments. Firms must obtain a Tax Deduction and Collection Account Number (TAN), deduct the appropriate TDS, deposit it timely, file quarterly TDS returns, and issue TDS certificates to partners. While this increases the compliance burden, it promotes transparency and broadens the tax base.

The enhanced TDS thresholds provide relief to small investors, senior citizens, and professionals by exempting smaller transactions from tax deductions, thereby improving cash flow and reducing administrative tasks.

Overall, these reforms reflect the government's commitment to simplifying tax laws, enhancing compliance, and fostering a taxpayer-friendly environment.