Changes for Partnership Firms & LLPs from April 2025 (Sec 194T)

Partnership firms and Limited Liability Partnerships (LLPs) are popular business structures in India. While partnerships operate under the Indian Partnership Act, of 1932, LLPs provide the added benefit of limited liability to partners. Both structures enjoy tax benefits but must also follow specific tax regulations. 

From April 1, 2025, new tax rules will affect partnership firms and LLPs, mainly impacting partner remuneration and TDS applicability. Here’s a breakdown of these changes in simple terms: 

1. New Limits on Remuneration to Partners

The government has revised the limits on how much firms can pay their partners as remuneration while claiming tax deductions:

  • For the first ₹6,00,000 of book profit: Firms can pay 90% of the book profit or ₹3,00,000, whichever is higher. 
  • In case of a loss: The maximum amount allowed is ₹3,00,000. 
  • For the remaining book profit: Firms can pay 60% of the remaining book profit. 

These changes ensure fair compensation while keeping tax benefits in check. 

Conditions for Deductibility: 

 

  1. Authorization by Partnership Deed: The remuneration must be authorized by the partnership deed and should be paid to working partners actively engaged in the firm’s business. 
  2. Compliance with Limits: The remuneration should not exceed the specified limits to qualify as a deductible expense. 

2. Introduction of TDS on Partner’s Salary & Interest (Section 194T)

A new TDS (Tax Deducted at Source) rule has been introduced under Section 194T, affecting payments made to partners. Here are the key points: 

  • Effective Date: April 1, 2025. 
  • TDS Rate: 10%. 
  • When to Deduct TDS: At the time of crediting the amount to the partner’s account or making the payment, whichever comes first. 
  • Exemption Limit: If the total salary, remuneration, bonus, or interest paid to a partner does not exceed ₹20,000 in a financial year, no TDS is required.
  • If the threshold is crossed: TDS will apply to the entire amount, not just the excess over ₹20,000.

Challenges & Compliance Burden

While these changes aim to improve tax efficiency, they pose challenges for firms and partners: 

1. Aggregate TDS Deduction Burden

The new provisions will apply from AY 2025-26 (FY 2024-25). However, since the Finance Bill 2024 is still pending approval, firms may face a sudden financial burden when the law is implemented. A 10% deduction on payments made over five months could significantly impact cash flow. 

2. Need for Partnership Deed Revision

Since all payments to partners must align with the Partnership Deed, firms may need to amend their deed. If the deed lacks provisions for statutory obligations under the new law, the firm must revise it promptly to remain compliant. 

3. Additional Compliance for Firms

Firms must file ITR-5, detailing partner payments (remuneration, interest, commissions, bonuses, and profit shares) along with partner PAN details. 

With the introduction of TDS under Section 194T, firms will now have to compute and file TDS returns, adding to their compliance burden. 

4. Risk of Penal Action for Non-Compliance

TDS Return Deadline: The due date for filing TDS returns for Q4 (March 2025) is May 31, 2025. 

TDS Deduction Deadline: TDS must be deducted by April 30, 2025. 

ITR Filing Deadline: 

Non-audit firms: July 31, 2025

Audit firms: October 31, 2025 

Firms finalizing their books just before filing ITR may miss the TDS deduction deadlines, resulting in: 

Late fees and interest on TDS. 

Additional financial burden due to penalties. 

What These Changes Mean for Partnership Firms & LLPs

  • Firms need to adjust their remuneration policies to align with the new limits. 
  • TDS compliance is now required on partner payments above ₹20,000 per year. 
  • Non-compliance could lead to penalties or disallowance of deductions. 

Final Thoughts

The new tax regulations are designed to bring more transparency and compliance to partnership firms and LLPs. Business owners should ensure they follow these new rules to avoid any tax issues. Consulting a tax expert can help firms implement these changes smoothly. 

Stay informed and plan ahead to keep your business tax-compliant!

Comprehensive Guide to Futures & Options Taxation

Comprehensive Guide to Futures & Options Taxation: Turnover Calculation, ITR Filing, Audit Requirements, Section 44AD, and Loss Treatment

Introduction to F&O Taxation

Futures and Options (F&O) are versatile derivatives in the Indian stock market that allow traders to hedge risks, speculate on price movements, and leverage their positions for higher returns. These instruments derive their value from an underlying asset, such as stocks, indices, commodities, or currencies, and are widely used by both individual and institutional investors. While F&O trading offers significant opportunities, it also involves a degree of complexity, especially in taxation.

This guide aims to simplify the tax implications of F&O trading by covering:

  • How F&O income is categorized under the Income Tax Act.
  • The correct Income Tax Return (ITR) form to file.
  • Detailed steps for calculating F&O turnover.
  • Tax audit applicability criteria.
  • Appropriate methods for handling losses arising from F&O transactions.

Speculative vs Non-Speculative Transactions in Income Tax

The Income Tax Act distinguishes between speculative transactions and non-speculative transactions (F&O):

AspectSpeculative TransactionsNon-Speculative Transactions (F&O)
DeliveryNo actual delivery (e.g., intraday)No actual delivery, cash-settled
Tax ClassificationSpeculative business incomeNon-speculative business income
Loss AdjustmentOnly against speculative incomeAgainst all business income
Loss Carry ForwardUp to 4 yearsUp to 8 years

Which ITR to File for F&O Trading?

The appropriate ITR form depends on your income type and turnover: 

1. ITR-3

Who Should File

  • Individuals and HUFs earn income from proprietary business or profession. 
  • Includes non-speculative business activities, like F&O trading. 

When to Use

  • If you maintain regular books of accounts for F&O trading. 
  • If your income or turnover exceeds limits for presumptive taxation. 

2. ITR-4 (Sugam)

Who Should File

  • Individuals, HUFs, and firms (excluding LLPs) opting for presumptive taxation under Section 44AD, 44ADA, or 44AE. 

When to Use

  • If your turnover is below ₹3 crore and income is declared at 6% for non-cash transactions or 8% for cash transactions. 

Business Code:

For F&O trading in ITR-3, use Business Code 13018:  

Calculation of Turnover for F&O Transactions (As Per ICAI Guidance Notes)

The Institute of Chartered Accountants of India (ICAI) has updated its guidance on the calculation of turnover for Futures and Options (F&O) transactions in the 8th Edition of Guidance Notes (August 2022). These updates streamline the process, particularly for options traders. Here’s a detailed breakdown:

1. Futures Transactions

TransactionProfit/LossAbsolute Value
Trade 1₹60,000₹60,000
Trade 2-₹40,000₹40,000
Trade 3₹30,000₹30,000

Options Turnover:
₹25,000 + ₹15,000 + ₹20,000 = ₹60,000
Total Turnover: ₹1,30,000 (Futures) + ₹60,000 (Options) = ₹1,90,000

Profit, Expenses & Tax in F&O

1. Tax on F&O Profits

Taxed as business income under applicable slab rates (0%-30% for individuals or HUFs).

2. Claiming Expenses

Deduct eligible expenses like brokerage fees, audit fees, software subscriptions, and depreciation on assets used for trading.

3. Presumptive Taxation:

Under Section 44AD, no expenses can be claimed, and income is presumed at 6% or 8% of turnover.

Tax Audit Applicability for F&O

Turnover Up to ₹3 Crore
No audit if presumptive taxation is opted for under Section 44AD.

Turnover Between ₹3 Crore and ₹10 Crore
No audit if cash transactions ≤ 5% of total receipts and payments.

Turnover Exceeding ₹10 Crore
Tax audit mandatory

TurnoverCash Transactions ≤ 5%Tax Audit Required
Up to ₹3 croreYesNo
₹3 crore to ₹10 croreYesNo (if books maintained)
₹3 crore to ₹10 croreNoYes
Above ₹10 croreIrrespectiveYes

Advance Tax Liability

Advance tax is applicable if the total liability exceeds ₹10,000 in a financial year.

Due DatePercentage of Tax PayableCumulative Tax Payable
June 15th15%15%
September 15th45%60%
December 15th75%75%
March 15th100%100%

Key Points to Note

Applicability for Presumptive Taxation:
If you opt for the Presumptive Taxation Scheme (Section 44AD), you are only required to pay 100% of the advance tax by March 15th of the financial year.

 Calculation of Tax Liability:

  • Include income from F&O trading, salary, house property, capital gains, and any other sources to determine your total taxable income.
  • Deduct eligible deductions under Section 80C to 80U and calculate the final tax liability to determine advance tax.

Case Study: How a Farmer's F&O Trading Led to a ₹68 Crore Tax Nightmare

What happens when you overlook the rules of reporting F&O trading in your tax filings? A Karnataka-based farmer learned this the hard way. His brief foray into Futures and Options (F&O) trading not only drained his finances but also put him in serious trouble with the Income Tax Department. Let’s dive into this eye-opening case and its key lessons for F&O traders.

The Story: From Trading to Trouble

The Beginning

⦁ The farmer traded in F&O during FY14, incurring a loss of ₹26 lakh.
⦁ Believing there was no need to report losses, he skipped declaring F&O transactions in his Income Tax Return (ITR).

The First Warning – IT Notices

⦁ In 2022, the Income Tax Department flagged his PAN for high-value transactions in F&O trading.
⦁ His total F&O turnover, including both sales and purchases, amounted to ₹69 crore—an amount that caught the department’s attention.
⦁ A reassessment case for FY14 was opened in 2021 to verify his undisclosed transactions.

The Turning Point – Ignoring Emails

⦁ The farmer failed to check emails or respond to IT notices.
⦁ With no response, the department passed an ex-parte order, treating the ₹69 crore turnover as taxable income instead of mere trading volume.

The Tax Shock

In May 2023, the IT Department issued a demand order of ₹68 crore, comprising:

⦁ Tax on ₹69 crore deemed income.
⦁ Interest from FY14 onwards.
⦁ Heavy penalties for non-compliance.

Frozen Assets

⦁ By December 2024, the IT Department froze the farmer’s bank account to recover the tax demand.
⦁ Unable to afford the 20% upfront deposit required for appealing, the farmer is now caught in a web of legal battles.

What F&O Traders Can Learn

This case highlights critical lessons for anyone trading in F&O:

1. Always Report F&O Transactions

  • Whether you make a profit or incur a loss, F&O trading must be reported under business income in your ITR.

2. Understand Turnover Calculations

  • Turnover in F&O includes the absolute sum of profits and losses.
  • Ignoring this can result in massive discrepancies during reassessments.

3. Respond to Notices Promptly

  • Never ignore emails or communications from the IT Department.
  • Prompt responses can prevent escalation and help clarify your case.

4. Seek Professional Help

  • Engaging a Chartered Accountant (CA) ensures proper tax planning and compliance with F&O trading rules.
  • Prompt responses can prevent escalation and help clarify your case.

Waiver of Late Fee for FORM GSTR-9C Filing

Key Points of the Notification

1. Waiver Conditions

  • The waiver applies to late fees exceeding the amount payable under Section 47 for filing FORM GSTR-9C (Reconciliation Statement) along with FORM GSTR-9 (Annual Return).
  • FORM GSTR-9C must be filed after the annual return but on or before 31st March 2025.

2. Covered Financial Years

The waiver covers the financial years 2017-18 to 2022-23 (i.e., 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23).

3. Eligibility Criteria

  • Registered persons required to file FORM GSTR-9C along with FORM GSTR-9, but who failed to do so, are eligible.
  • The required forms must be filed on or before 31st March 2025.

4. Refund Clause

No refund will be provided for late fees already paid for the delayed filing of FORM GSTR-9C for the specified financial years.

5. Deadline for Compliance

FORM GSTR-9C must be furnished by 31st March 2025 to avail of the waiver.

6. Turnover Threshold for GSTR-9C

  • Applicable to taxpayers with aggregate turnover exceeding ₹5 crore during the relevant financial year.
  • Turnover includes taxable supplies, exempt supplies, exports, and interstate supplies.

Late Fee Waiver Under Section 47 of CGST Act

The notification states that the waiver applies to late fees more than the late fee payable under Section 47 of the Central Goods and Services Tax (CGST) Act, 2017. To understand this better, let’s break it down:

Category 1: Turnover ≤ ₹5 Crores

Late Fee

₹50 per day (₹25 CGST + ₹25 SGST/UTGST)

Maximum Late Fee

0.04% of turnover in the State/Union Territory (0.02% CGST + 0.02% SGST/UTGST)

Applicable Late Fee

Whichever is lower between the daily fee and the maximum cap

Category 2: Turnover > ₹5 Crores and ≤ ₹20 Crores

Late Fee

₹100 per day (₹50 CGST + ₹50 SGST/UTGST)

Maximum Late Fee

0.04% of turnover in the State/Union Territory (0.02% CGST + 0.02% SGST/UTGST)

Applicable Late Fee

Whichever is lower between the daily fee and the maximum cap

Category 3: Turnover > ₹20 Crores

Late Fee

₹200 per day (₹100 CGST + ₹100 SGST/UTGST)

Maximum Late Fee

0.50% of turnover in the State/Union Territory (0.25% CGST + 0.25% SGST/UTGST)

Applicable Late Fee

Whichever is lower between the daily fee and the maximum cap

This move aims to reduce the compliance burden on taxpayers and encourage timely submission of pending returns. Ensure to take advantage of this waiver by filing your returns before the deadline.

Stay Updated with the Latest Financial Insights

Date: 23rd January 2025

Issued By: Ministry of Finance (Department of Revenue), Central Board of Indirect Taxes and Customs (CBIC)

The Central Government has issued Notification No. 08/2025 Central Tax regarding the waiver of late fees under Section 47 of the CGST Act, 2017

Scenario:

For FY 2021-22, the due date for filing GSTR-9 (Annual Return) was 31st December 2022

Case 1: No Late Fee for GSTR-9 Filed On Time but GSTR-9C Not Filed

  • Action Taken: You filed GSTR-9 before the due date (31st December 2022) with no late fee (₹0 late fee). However, you forgot to file GSTR-9C, which was applicable to you.
  • Current Relief: As per the notification, you can now file GSTR-9C before 31st March 2025 without paying any late fee. The late fee is completely waived off.

Case 2: Late Fee Paid for GSTR-9 but GSTR-9C Not Filed

  • Action Taken: You filed GSTR-9 after the due date and paid a late fee of ₹10,000. However, you did not file GSTR-9C, which was applicable to you.
  • Actual Late Fee for GSTR-9C: Let’s assume the late fee for GSTR-9C is ₹1,00,000.
  • Current Relief: The late fee you have already paid for GSTR-9 (₹10,000) will be adjusted against the total applicable late fee.
  • You do not need to pay the remaining ₹90,000, as the excess late fee is waived under the notification.