Why You Should File Your Income Tax Return
On Time — And Why It Matters More Than Ever
Assessment Year 2026-27 | Financial Year 2025-26
(Governed by the Income Tax Act, 1961)
Filing your Income Tax Return (ITR) is not merely a legal obligation — it is a powerful financial tool that works in your favour when done within the prescribed due date. Many taxpayers delay or overlook their returns, often unaware of the significant benefits they forfeit. This article from Sankar Kumar Associates highlights the key advantages of timely ITR filing for Assessment Year 2026-27, the applicable due dates, and importantly, the expanded mandatory filing criteria under Section 139(1) and its Seventh Proviso.
Note: AY 2026-27 relates to income earned during Financial Year 2025-26 (April 1, 2025 to March 31, 2026). Even though the Income Tax Act, 2025 (ITA 2025) has come into force from April 1, 2026, the return for AY 2026-27 is entirely governed by the Income Tax Act, 1961, as confirmed by the Income Tax Department. All section references in this article are accordingly under the IT Act, 1961.
1. Due Dates for Filing ITR — Assessment Year 2026-27
The following due dates are prescribed under Section 139(1) of the Income Tax Act, 1961 for AY 2026-27. Budget 2026 has introduced a new extended deadline of 31st August 2026 for non-audit business/professional taxpayers filing ITR-3 or ITR-4, and has also extended the Revised Return deadline to 31st March 2027:
S.No. Category of Taxpayer Due Date for AY 2026-27 Applicable Provision (IT Act, 1961)
1 Individuals, HUF, AOP, BOI — Accounts NOT required to be audited (ITR-1 / ITR-2) 31st July 2026 Sec 139(1), IT Act, 1961
2 Individuals / Professionals with Business / Professional income — NOT subject to Tax Audit (ITR-3 / ITR-4) [New — Budget 2026] 31st August 2026 Sec 139(1), IT Act, 1961
3 Businesses / Professionals — Accounts required to be audited under Section 44AB (ITR-3 / ITR-5 / ITR-6) 31st October 2026 Sec 139(1) r/w Sec 44AB
4 Partner of a Firm where Firm is subject to Tax Audit under Section 44AB 31st October 2026 Sec 139(1), IT Act, 1961
5 Companies (Domestic & Foreign) — NOT subject to Transfer Pricing Report (ITR-6) 31st October 2026 Sec 139(1), IT Act, 1961
6 Taxpayers subject to Transfer Pricing Report under Section 92E 30th November 2026 Sec 139(1) r/w Sec 92E
7 Belated Return — All categories (if original return not filed within due date) 31st December 2026 Sec 139(4), IT Act, 1961
8 Revised Return — Correction of errors in original / belated return [Extended — Budget 2026] 31st March 2027 Sec 139(5), IT Act, 1961
9 Updated Return (ITR-U) — Voluntary disclosure of additional income 31st March 2031 (48 months from end of AY 2026-27) Sec 139(8A), IT Act, 1961
Note: The above due dates are as per the Income Tax Act, 1961 and Budget 2026 notifications. The Government may extend due dates through official CBDT notifications. Always verify the latest due dates on the official Income Tax portal: www.incometax.gov.in
2. Mandatory Filing of ITR — Who Must File?
Under Section 139(1) of the Income Tax Act, 1961, the following are required to mandatorily furnish a return of income on or before the applicable due date:
2.1 General Mandatory Categories
1. Every Company and every Firm — irrespective of whether any income has been earned or a loss has been incurred during the year.
2. Every individual, HUF, AOP or BOI — if the total income (before deductions under Chapter VI-A) during the previous year exceeds the basic exemption limit.
3. Every person who is required to furnish a return in respect of the income of another person (e.g., guardian filing on behalf of a minor).
4. Every resident individual who holds any asset (including financial interest in any entity) outside India, has signing authority in any account outside India, or is a beneficiary of any asset outside India.
2.2 Mandatory Filing under the Seventh Proviso to Section 139(1) — High-Value Transactions [w.e.f. AY 2020-21]
The Finance (No. 2) Act, 2019 inserted the Seventh Proviso to Section 139(1) of the IT Act, 1961, operative with effect from 1st April 2020 (i.e., from AY 2020-21). This is one of the most significant expansions of the mandatory ITR filing obligation in recent years.
Under this proviso, even a person whose total income is BELOW the basic exemption limit is required to mandatorily file an ITR if he/she has undertaken any one or more of the high-value transactions specified in the proviso or notified by the CBDT under clause (iv) thereof. It is sufficient to satisfy even ONE condition out of the seven listed below.
Important: This provision applies only to persons falling under clause (b) of Section 139(1) — i.e., Individuals, HUF, AOP, BOI and Artificial Juridical Persons. It does not apply separately to Companies and Firms, as they are already mandatorily required to file returns in every case.
The complete list of mandatory conditions under the Seventh Proviso and Rule 12AB of the Income Tax Rules, 1962 is as under:
S.No. Clause Condition / Transaction Threshold Limit
PART A: Conditions under Section 139(1) — Seventh Proviso to the IT Act, 1961 [Inserted by Finance (No. 2) Act, 2019 w.e.f. 01-04-2020]
1 Clause (i) Deposits in one or more Current Accounts maintained with a Banking Company or a Co-operative Bank Aggregate deposits exceeding Rs. 1 Crore during the previous year
2 Clause (ii) Expenditure incurred on travel to a foreign country — for self or for any other person Aggregate expenditure exceeding Rs. 2 Lakh during the previous year
3 Clause (iii) Expenditure incurred on consumption of electricity Aggregate expenditure exceeding Rs. 1 Lakh during the previous year
4 Clause (iv) Any other conditions or transactions as may be prescribed by the Central Board of Direct Taxes (CBDT) As notified — see Part B below (Rule 12AB of IT Rules, 1962)
PART B: Additional Conditions notified under Clause (iv) of the Seventh Proviso — Rule 12AB of IT Rules, 1962 [Inserted vide CBDT Notification No. 37/2022 dated 21-04-2022, w.e.f. AY 2022-23]
5 Rule 12AB(i) Total Sales, Turnover or Gross Receipts from Business Exceeds Rs. 60 Lakh during the previous year
6 Rule 12AB(ii) Total Gross Receipts from Profession Exceeds Rs. 10 Lakh during the previous year
7 Rule 12AB(iii) Aggregate of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) during the previous year — in the case of the person Rs. 25,000 or more [For resident Senior Citizens (60 years or more): Rs. 50,000 or more]
8 Rule 12AB(iv) Aggregate deposits in one or more Savings Bank Accounts with any Banking Company, Co-operative Bank, or Post Office Rs. 50 Lakh or more during the previous year
Note: Satisfying even ONE of the above 7 conditions (Clauses i to iii of the Seventh Proviso + Rule 12AB conditions i to iv) is sufficient to make ITR filing mandatory, regardless of income level. There is a specific field in ITR Part A — General Information asking: ‘Are you filing return of income under the Seventh Proviso to Section 139(1) but otherwise not required to furnish return of income?’ — this should be ticked ‘Yes’ in such cases.
2.3 Other Specific Mandatory Situations
In addition to the above, ITR filing is also mandatory in the following situations:
✔ Persons claiming TDS / TCS refunds — even if income is below the basic exemption limit.
✔ Persons who have incurred a loss under any head of income and wish to carry it forward to future years.
✔ Persons in receipt of income from property held under trust or other legal obligations for charitable / religious purposes, political parties, research associations, news agencies, educational institutions, hospitals, trade unions, provident funds, etc.
✔ Persons required to furnish a report under Section 92E (Transfer Pricing) in respect of international or specified domestic transactions.
✔ Persons receiving notice under Section 142(1) or Section 148 / 148A of the IT Act, 1961.
3. Key Advantages of Filing ITR Within the Due Date
3.1 Avoid Late Filing Fee under Section 234F
Filing after the due date attracts a mandatory late fee under Section 234F of the IT Act, 1961:
✔ Rs. 5,000 if total income exceeds Rs. 5 lakhs.
✔ Rs. 1,000 if total income is up to Rs. 5 lakhs.
Filing within the due date saves you from this automatic penalty — no exceptions, no waivers.
3.2 Carry Forward of Losses — A Critical Benefit
This is one of the most significant and often overlooked advantages of timely filing. Under the IT Act, 1961:
✔ Losses under the heads ‘Capital Gains’ and ‘Business/Profession’ can be carried forward to set off against future income ONLY if the ITR is filed on or before the due date under Section 139(1).
✔ If you file a belated return (after the due date), the right to carry forward such losses is permanently lost — except for loss under the head ‘House Property’, which can still be carried forward.
For investors, traders, and business owners, losing this benefit can have significant tax implications in subsequent years.
3.3 Avoid Interest under Section 234A
Interest under Section 234A is levied @ 1% per month (or part of a month) on the outstanding tax amount, from the due date of filing until the actual date of filing. Every month of delay adds to your tax cost. Filing on time eliminates this interest burden entirely.
3.4 Faster Refund Processing
If excess TDS has been deducted or advance tax paid, timely filing ensures faster processing of refund by the Central Processing Centre (CPC), Bengaluru. Interest on refund under Section 244A is available, but prompt filing avoids delays in credit to your bank account.
3.5 Option to Choose Old Tax Regime
The New Tax Regime is the default regime under Section 115BAC of the IT Act, 1961. If you wish to opt for the Old Tax Regime — to claim deductions like Section 80C, 80D, HRA exemption, home loan interest under Section 24(b), etc. — you must file your ITR on or before the due date. Filing a belated return means you permanently lose the option to choose the Old Tax Regime for that year.
3.6 Revised Return Facility — Extended to 31st March 2027 (Budget 2026)
Budget 2026 has extended the Revised Return deadline under Section 139(5) from 31st December to 31st March 2027 for AY 2026-27. A late fee is applicable if the revised return is filed after 31st December 2026. This allows correction of mistakes — missed deductions, TDS mismatches, or forgotten income.
3.7 Loan and Visa Applications Made Easy
✔ Strengthens home loan, personal loan, and business loan applications.
✔ Serves as income proof for visa applications to the USA, UK, Canada, Australia, Schengen countries, etc.
✔ Demonstrates financial discipline and creditworthiness.
3.8 Clean Trail for Capital Gains and Property Transactions
Consistent timely filing creates a clean audit trail for capital gains computation, cost of acquisition, and indexed cost claims. It also significantly reduces the risk of scrutiny notices for unexplained investments or wealth accumulation.
3.9 Voluntary Compliance and Good Standing
✔ Reduces the probability of being selected for scrutiny assessment.
✔ Demonstrates voluntary compliance — viewed favourably during any inquiry or verification.
✔ Maintains a clean compliance history for government tenders, professional licences, and regulatory approvals.
3.10 Eligibility for Updated Return (ITR-U) at Lower Additional Tax
Under Section 139(8A) of the IT Act, 1961, taxpayers can voluntarily disclose any previously unreported income by filing an Updated Return (ITR-U) within 48 months from the end of the relevant Assessment Year. For AY 2026-27, ITR-U can be filed up to 31st March 2031. Budget 2026 further provides that filing ITR-U with payment of tax, interest, and the additional levy now grants immunity from penalties for under-reporting or misreporting of income.
4. Consequences of Late Filing or Non-Filing
To fully appreciate the advantages of timely filing, it is equally important to understand the consequences of default:
Default / Delay Consequence (IT Act, 1961)
Late filing after due date Late fee up to Rs. 5,000 under Section 234F, IT Act, 1961
Tax unpaid as on due date of filing Interest @ 1% per month (or part thereof) under Section 234A, IT Act, 1961
Belated return (filed after due date) Loss of right to carry forward Capital Gains losses and Business/Profession losses (loss from House Property can still be carried forward)
Filing belated return — Tax Regime choice Mandatory taxation under New Tax Regime; option to choose Old Tax Regime (with deductions like 80C, 80D, HRA, Sec 24(b)) is permanently lost for that year
Wilful failure to furnish return Prosecution: Rigorous imprisonment of 3 months to 7 years + fine under Section 276CC, IT Act, 1961
5. Practical Checklist for Timely ITR Filing — AY 2026-27
✔ Reconcile Form 26AS, AIS (Annual Information Statement), and TIS (Taxpayer Information Summary) with your books and bank statements before filing.
✔ Collect Form 16 / Form 16A from employers and all deductors.
✔ Check whether you are covered by the Seventh Proviso to Section 139(1) or Rule 12AB — even if your income is below the basic exemption limit.
✔ For taxpayers with audit requirement, initiate Tax Audit process at least 6 to 8 weeks before the due date. Tax Audit Report submission deadline is 30th September 2026 for 31st October ITR cases.
✔ Verify pre-filled data on the ITR portal — TDS credits, dividend income, interest income, and capital gains pre-populated from AIS.
✔ Decide between Old and New Tax Regime before filing. If opting for Old Regime, the ITR MUST be filed before the due date.
✔ E-verify your return within 30 days of filing to complete the process. An unverified return is treated as not filed.
✔ Consult your Chartered Accountant early to optimise deductions and ensure accurate computation.
6. Conclusion
Filing your Income Tax Return within the prescribed due date is one of the simplest and most impactful financial decisions you can make each year. With the expanded mandatory filing criteria under the Seventh Proviso to Section 139(1) and Rule 12AB of the IT Rules, 1962, a significantly larger number of taxpayers are now legally required to file their returns — even if their income is below the taxable limit. The advantages of timely filing — from avoiding interest and penalties, protecting loss carry-forwards, and securing your Old Tax Regime choice, to strengthening loan applications and maintaining voluntary compliance — far outweigh any inconvenience.
For Assessment Year 2026-27, the key due dates are 31st July 2026 for salaried individuals, 31st August 2026 for non-audit business/professional taxpayers, and 31st October 2026 for audit cases. Start early, gather your documents, reconcile your TDS and AIS data, and file on time.
For professional assistance with your Income Tax Return filing, contact Sankar Kumar Associates — Chartered Accountants, Nagarampalem, Guntur, Andhra Pradesh.
Published by Sankar Kumar Associates | June 2026
Source: www.incometax.gov.in | Budget 2026 | IT Act, 1961 | IT Rules, 1962
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Readers are advised to consult their tax adviser for situation-specific guidance.
Income Tax – Tax Audit Due Date extended to 10th November 2025 and Due Date of ITR extended to 10th December 2025
The Central Board of Direct Taxes (CBDT) has decided to extend the due date of furnishing of Return of Income under sub-Section (1) of Section 139 of the Act for the Assessment Year 2025-26, which is 31st October 2025 in the case of assessees referred in clause (a) of Explanation 2 to sub-Section (1) of Section 139 of the Act, to 10th December 2025.
The ‘specified date’ of furnishing of the report of audit under the provisions of the Income-tax Act, 1961, for the Previous Year 2024-25 (Assessment Year 2025-26), in the case of assessees referred to in clause (a) of Explanation 2 to sub-section (1) of section 139 of the Act, originally due on 30th September 2025, was extended to 31st October 2025. The Central Board of Direct Taxes has decided to further extend the said ‘specified date’ from 31st October 2025 to 10th November 2025.
Advisory on reporting values in Table 3.2 of GSTR-3B Apr 11th, 2025
1. Table 3.2 of Form GSTR-3B captures the inter-state supplies made to unregistered persons, composition taxpayers, and UIN holders out of the supplies declared in Table 3.1 & 3.1.1 of GSTR-3B. The values in Table 3.2 of GSTR-3B auto-populates from corresponding inter-state supplies declared in GSTR-1, GSTR-1A, and IFF in requisite tables.
2. It is to inform you that from April-2025 tax period, inter-state supplies auto-populated in Table 3.2 of GSTR-3B will be made non-editable. The GSTR-3B shall be filed with the auto-populated values as generated by the system only.
3. Therefore, in case any modification/amendment is required in auto-populated values of Table 3.2 of GSTR-3B, same can be done only by amending the corresponding values in respective tables of GSTR-1A or through Form GSTR-1/IFF filed for subsequent tax periods.
4. To ensure that GSTR-3B is filed accurately with the correct values of inter-state supplies, it is advised to report the correct values in GSTR-1, GSTR-1A, or IFF. This will ensure the auto-populated values in Table 3.2 of GSTR-3B are accurate and compliant with GST regulations.
FAQ’s
1. What are the changes related to reporting supplies in Table 3.2?
Starting from the April 2025 tax period, the auto-populated values in Table 3.2 of GSTR-3B for inter-state supplies made to unregistered persons, composition taxpayers, and UIN holders will be non-editable, and taxpayers will need to file GSTR-3B with the auto-populated values generated by the system only.
2. How can I rectify values in Table 3.2 of GSTR-3B if incorrect values have been auto-populated after April 2025 period onwards due to incorrect reporting of the same through GSTR-1?
If incorrect values are auto-populated in Table 3.2 after April 2025, taxpayers need to correct the values by making amendments through Form GSTR-1A or through Form GSTR-1/IFF filed for subsequent tax periods.
3. What should I do to ensure accurate reporting in Table 3.2 of GSTR-3B?
Taxpayers should ensure that the inter-state supplies are reported correctly in their GSTR-1, GSTR-1A, or IFF. This will ensure that the accurate values are auto-populated in Table 3.2 of GSTR-3B.
4. Till what time/date I can amend values furnished in GSTR-1 through Form GSTR-1A?
As there is no cut-off date for filing Form GSTR-1A before GSTR-3B which means Form GSTR-1A can be filed after filing Form GSTR-1and till the time of filing Form GSTR-3B. Hence, any amendment required in auto-populated values of table 3.2, same can be carried out through Form GSTR-1A till the moment of filing GSTR-3B.
2. It is to inform you that from April-2025 tax period, inter-state supplies auto-populated in Table 3.2 of GSTR-3B will be made non-editable. The GSTR-3B shall be filed with the auto-populated values as generated by the system only.
3. Therefore, in case any modification/amendment is required in auto-populated values of Table 3.2 of GSTR-3B, same can be done only by amending the corresponding values in respective tables of GSTR-1A or through Form GSTR-1/IFF filed for subsequent tax periods.
4. To ensure that GSTR-3B is filed accurately with the correct values of inter-state supplies, it is advised to report the correct values in GSTR-1, GSTR-1A, or IFF. This will ensure the auto-populated values in Table 3.2 of GSTR-3B are accurate and compliant with GST regulations.
FAQ’s
1. What are the changes related to reporting supplies in Table 3.2?
Starting from the April 2025 tax period, the auto-populated values in Table 3.2 of GSTR-3B for inter-state supplies made to unregistered persons, composition taxpayers, and UIN holders will be non-editable, and taxpayers will need to file GSTR-3B with the auto-populated values generated by the system only.
2. How can I rectify values in Table 3.2 of GSTR-3B if incorrect values have been auto-populated after April 2025 period onwards due to incorrect reporting of the same through GSTR-1?
If incorrect values are auto-populated in Table 3.2 after April 2025, taxpayers need to correct the values by making amendments through Form GSTR-1A or through Form GSTR-1/IFF filed for subsequent tax periods.
3. What should I do to ensure accurate reporting in Table 3.2 of GSTR-3B?
Taxpayers should ensure that the inter-state supplies are reported correctly in their GSTR-1, GSTR-1A, or IFF. This will ensure that the accurate values are auto-populated in Table 3.2 of GSTR-3B.
4. Till what time/date I can amend values furnished in GSTR-1 through Form GSTR-1A?
As there is no cut-off date for filing Form GSTR-1A before GSTR-3B which means Form GSTR-1A can be filed after filing Form GSTR-1and till the time of filing Form GSTR-3B. Hence, any amendment required in auto-populated values of table 3.2, same can be carried out through Form GSTR-1A till the moment of filing GSTR-3B.
Advisory on Table-12 of GSTR-1 or GSTR-1A
It to inform that GSTN has implemented phase wise changes in Table-12 of GSTR-1 or GSTR-1A. For the same various advisories have been issued time to time, which are available on GST Portal. GSTN is going to implement Phase-III of Table 12 of GSTR 1 & 1A from April, 2025 tax period onwards. Which implies:
(1). Table-12 has been bifurcated into two tables namely B2B and B2C, to report these summary of these supplies HSN wise separately in corresponding table.
(2). Manual entry of HSN will not be allowed. Taxpayer will be able to choose correct HSN from given Drop down.
For detailed advisory on the above issue, kindly refer to Advisory dated Jan 22nd, 2025 issued by GSTN, which is available on the GST Portal at https://services.gst.gov.in/services/advisoryandreleases/read/574.
(1). Table-12 has been bifurcated into two tables namely B2B and B2C, to report these summary of these supplies HSN wise separately in corresponding table.
(2). Manual entry of HSN will not be allowed. Taxpayer will be able to choose correct HSN from given Drop down.
For detailed advisory on the above issue, kindly refer to Advisory dated Jan 22nd, 2025 issued by GSTN, which is available on the GST Portal at https://services.gst.gov.in/services/advisoryandreleases/read/574.
TDS CORRECTION STATEMENTS TIME LIMIT INTRODUCED.. ARE YOU MISSING ANY THING.. PLS HAVE A LOOK
As per amendment in section 200(3) of the Income-tax Act vide FINANCE (No.2) ACT,2024, no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in sub-section (3) is required to be delivered. In view of the above, correction statements pertaining to Financial Year 2007-08 to 2018-19 shall be accepted only up-to 31st March 2025. Deductors/Collectors and other Stakeholders may kindly take note
GST Regular Dealer want to opt for Composition for FY 2025-26 .. So Act Now..
Taxpayers can opt for the Composition Scheme for FY 2025-26 via GST Portal (‘Services -> Registration -> Application to Opt for Composition Levy’) from February 4 to March 31, 2025, by filing Form CMP-02
Understanding Section 194T of the Income Tax Act,1961
Following section 194T shall be inserted after section 194S by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025:
Payments to partners of firms.
194T. (1) Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-tax thereon at the rate of ten percent.
(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year Applicable wef 01.04.2025
Provisions at a glance:
| Who is liable to deduct TDS | Firm/LLP As per S.2(23), Firm shall have the meaning assigned to it in the Indian partnership act,1932 and shall include a LLP as defined in the LLP act, 2008. |
| Deductee/payee | Partner of the firm/LLP, including a minor admitted to the benefits of partnership |
| Payment from which TDS is to be deducted | Salary, remuneration, commission, bonus and interest paid/credited to a partner of a firm/LLP |
| Payees entitled to receive payment without deduction of TDS – Threshold limit for non-deduction of TDS | ₹ 20,000 The threshold is not to be applied separately to payments salary, remuneration, commission, bonus or interest made to partners but to the aggregate of these types of payments made to partners during a financial year. |
| Tax base i.e. the amount on which TDS % is to be applied for computing TDS to be deducted | Salary, remuneration, commission, bonus and interest to any account (including capital account) of the partner of the firm under the purview of TDS for aggregate amounts of more than ` 20,000 in the financial year. If threshold exceeded, TDS to be deducted on entire amount of salary, remuneration etc. and not merely the excess over ₹ 20,000 |
| Applicable date | The above amendment will be effective from 1st April, 2025, unlike various other proposed amendments to TDS provisions which would be effective from 1st October,2024. |
| Do we need to deduct TDS for a Non Resident partner also | Yes. |
| Applicable rate of TDS | 10% If the payee partner is a resident, no surcharge/health and education cess If the payee partner is a non-resident, 10%+ applicable surcharge +health and education cess |
| For Non Resident partner Do we need to deduct under this section or U/s. 195 ? | Income earned by way of remuneration or interest by a non-resident partner from an Indian partnership firm is chargeable to tax as business income, and Section 195 mandates tax deductions at rates of 30% or 40%, as applicable The new Section 194T does not exclude non-resident recipients from its scope, which creates potential controversies regarding the applicability of both sections. Moreover, neither provision overrides the other; both sections hold equal weight and must be interpreted and applied in conjunction. To overcome conflict, the doctrine of harmonious construction, In line with this principle, section195 would apply to non-resident payees, while Section 194T would apply to resident payees for tax deductions. This approach ensures a logical, balanced conclusion and avoids any conflict between the two provisions. The observations of the apex court while dealing with tax deduction under Section 194E in the case of PILCOM v. CIT and language employed in Section 194T support the argument that even if remuneration payable to a non-resident partner is not taxable in India, the obligation to deduct tax under Section 194T still persists. It is worth noting that the non- resident can opt for treaty benefit at time of filing his return of income in India. |
| Rate of TDS if PAN/Aadhaar of payee partner is not available | 20% |
| Wheater provisions of higher TDS rates for ITR non-filers (Section 206AB) is applicable to Section 194T | No. |
| Time of deduction | At the time of credit of such amount to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier |
| Whether the payee partner can obtain certificate u/s 197 for no TDS or TDS at a lower rate | No. |
| Whether the payee partner can avail the facility of nil TDS deduction by submitting self-declaration in Form 15G/Form 15H | No. |
| Furnishing of TDS returns | Yes. In Form 26Q |
| TDS certificate to be issued by deductor (firm/LLP) to deductee (partner) | Form No. 16A |
| Furnishing of statement in respect of payment of any income to residents without TDS | No such requirement prescribed for Section 194T yet |
| No power to CBDT to issue any removal of difficulties order | Unlike Sections 194Q, 194R and 194S, Section 194T does not empower CBDT to issue any removal of difficulties order binding on the assessee and the authorities, including CIT(A). |
| TDS is deductible whether the payee-partner is a working partner or not? | This distinction is not relevant for Section 194T. TDS is deductible whether the specified sums are paid or credited to a working or non-working partner. Likewise, for deduction of TDS under Section 194T, it does not matter whether the interest payment to the partner is allowable or disallowable under Section 40(b). |
| Time of Deduction of TDS | TDS is to be deducted at the time of crediting such sum to the partner’s account (including his capital account) or at the time of payment thereof, whichever is earlier. Therefore, there is no need to deduct TDS under Section 194T if the earlier of credit and payment occurs before 1-4-2025. |
| Where the earlier of credit and payment took place prior to 1-4-2025, such sum is not covered under TDS and is not to be included in reckoning the limit of ` 20,000. | This is based on CBDT’s Circular issued under Section 194Q in the context of that Section CBDT had, vide Circular No. 13/2021, dated 30-6-2021, clarified that Since section 194Q of the Act mandates buyers to deduct tax on credit of sum in the account of the seller or on payment of such sum, whichever earlier, the provision of this subsection shall not apply on any sum credited or paid before lst July 2021. If either of the two events had happened before 1st July 2021, that transaction would not be subjected to the provisions of section 194Q of the Act. |
| Practical Difficulties and Obstacles | Determining Partner Remuneration Dependence on Book Profits Increased Compliance Burden |
| Though section 194T is not a long section, but several issues arise out of it:1. | Allowability or disallowability of deduction in the hands of the firm and its corresponding taxability or non-taxability in the hands of the partner would be of no consequence in the matter of obligation to deduct tax at source. This mismatch would prompt CPC to issue notice to the partner to the effect that the income from the Firm offered in partner’s return is less as compared to TDS credit claimed in the return of income. Any significant delay in finalisation of books of accounts of the firm in such a situation may lead to the failure of timely compliance of deduction of tax at source and its deposit in time. In absence of non obstante clause in both section 194T and section 195, this issue i.e. tax is to be deducted under which of the two sections, would always remain relevant Considering the fact that there are many micro entities in the form of partnership firms, prescribing TDS compliance inrespect of payment to partners seems to be a rigid measure given the fact that the threshold limit is also too low at Rs.20,000. |
| contains certain practical difficulties: | A partner may introduce or withdraw capital for various reasons during the year. Temporary withdrawals may be repayable within the same year or adjusted against remuneration or interest at year-end. These transactions are not considered salary, commission, or remuneration when they occur. (b) A partner’s remuneration may be fixed or based on the firm’s financial results, determined after finalising accounts. This makes the nature of the payment unclear at the time, creating ambiguity in applying Section194T. (c) Additionally, where the firm’s accounts are finalised after the due date to deposit the tax deducted in the last month (30th April), it may lead to interest and penalties on delayed TDS deposits, despite no fault of the assessee. |
| Other Considerations | Remuneration is calculated based on the book profit, which is typically finalized at the end of the year. This often leads to delays in deducting and paying tax on time unless partners withdraw partial remuneration systematically, complying with TDS norms throughout the year. This situation will compel firms to finalize their accounts in a timely manner to comply with TDS provisions. The judiciary has consistently held that the allowability of remuneration to partners must align with the partnership deed, which should specify the manner and method of calculating remuneration. Therefore, partnership firms must revisit their deeds within the prescribed timeframe to ensure compliance with the amended law and the provisions of the Income Tax Act, 1961. |
| TDS under new Income tax bill, 2025 | All the TDS sections in the current act (Section 192 to 194T) are now consolidated under one section, section 393. The rates and threshold limits have not been changed. The rates and limits as proposed in Budget 2025 also hold good in the new bill. S. 393(3)-FOR PAYMENTS TO ANY PERSON [Table: S.No. 7] |
| Closing Remarks: With these changes, it is essential for firms to revisit their existing partnership deeds and implement robust compliance processes to ensure the timely discharge of their tax deduction obligations, thus avoiding potential tax liabilities. When it comes to remuneration payable to foreign partners, firms and LLPs must exercise extra caution in meeting their obligations under the Act. To mitigate future challenges, one can opt to apply Section 195 if the remuneration is taxable and Section 194T if it is not taxable in India when making payments to non-resident partners. However, this issue is not free from litigation and judiciary may confirm the particular interpretation. While this move by the government is expected to foster a more equitable tax environment, promote growth, and strengthen the overall tax compliance framework for partnership firms and LLPs, further clarification from the government is necessary to enhance the efficiency and effectiveness of this provision, ensuring clearer guidance for businesses. | |
About Us
Sankar Kumar Associates, Chartered Accountants established in the year 1998.
Presently the firm comprises of total three partners having extensive and wide range of experience in rendering the Services in the areas of Auditing, Company Law, Direct and Indirect Taxes as well as Management Consultancy Services adequately supported by other professional staff.