Punjab Pradesh Beopar Mandal flags negative impact of Income Tax Act provision

Members of the Punjab Pradesh Beopar Mandal (PPBM) have expressed concern over Section 194T of the Income Tax Act, which came into force on April 1, 2025, for negatively impacting the MSME sector.

PPBM president Piara Lal Seth, in a release issued here on Thursday, said the provision introduced over a year ago had brought significant changes to the tax structure for partnership firms and LLPs. Firms are now required to deduct TDS at the rate of 10 per cent on payments to their partners — such as salaries, remuneration, commissions, bonuses and interest.

The provision will apply if the total payment to a partner in a financial year exceeds Rs 20,000. TDS will be deducted based on the payment or credit to the account, whichever is earlier. Also, if the partner does not provide PAN details, the TDS rate will increase to 20 per cent. He clarified that while dividends (profit shares), capital withdrawals and reimbursements for actual expenses are excluded from the provision, bringing regular payments to partners under its ambit will severely impact the liquidity of businesses.

The PPBM stated that the amendment imposes an unnecessary and unwanted financial burden on MSMEs and industrialists. It reasoned that collecting advance tax through TDS is not rational when partners are already filing their Income Tax Returns and paying taxes in full regularly. This only blocks working capital and hinders business operations. Seth said the MSME sector was already facing a shortage of working capital due to delays in input tax credits under GST and other compliance burdens.