TDS on salary or remuneration paid to partners
Section 192 of the Income Tax Act, 1961 governs the provisions for deduction of TDS on salary or remuneration. Under this section, the employer is liable to deduct tax at source on any amount paid to employee under the head “Salaries”.
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Section-192 reads as follows: “(1) Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.” |
Following points can be derived from the above provision:
- TDS under section 192 shall be deducted by the person responsible for making payment of “Salaries” i.e. employer.
- Section 192 is applicable only in respect of the income which is chargeable under the head of “Salaries”. The existence of employer-employee relationship is a vital test for taxing any income under the head “Salaries”. Employer-Employee relationship can be established only where the employee works under direct control and supervision of the employer.
- No such employer-employee relationship can be perceived in case of partnership firm and the partners. As such, the payment of remuneration to partners cannot be taken at par with “Salaries” for the purpose of TDS u/s 192.
- Therefore, a conclusion can be drawn that TDS is not required to be deducted from partner’s remuneration as per the provisions of section 192.
We will try to analyse the above topic from another angle. In the discussion ahead, we will discuss the provisions of Section 28 of the Income Tax Act, 1961 to bring more clarity to the topic.
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Clause (v) of section 28- Profits and gains of business or profession: “The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”, (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm” |
Analysis:
- Any remuneration received by a person from the firm in which he is partner, shall be treated as his income.
- Such remuneration income shall be taxable in the hands of partner under the head “Profits & Gains of Business or Profession”.
- As such, it is very clear that the partner’s remuneration is his business income and not salaries.
- As such, TDS is not deductible under section 192 on partner’s remuneration.
- Further, the provisions of section 194J are also not applicable for deduction of TDS on partner’s remuneration.
Whether TDS deductible on salary or remuneration to partner?
On the basis of Section 192 read with section 28, it can be safely concluded that the remuneration received by a partner from the partnership firm whether received as salary, remuneration or commission or by whatever name called is not “Salary” and therefore no TDS shall be deductible on such remuneration under section 192 or any other section of the Income Tax Act, 1961.
