Chhattisgarh Introduces Major Income Tax Changes: TDS on Partner Payments and Removal of TCS for High-Turnover Firms
In a significant move by the Income Tax Department for the 2025-26 financial year, Chhattisgarh has announced the abolition of Section 206C-1H, a major tax provision affecting high-turnover businesses and partnership firms across the state. The new regulations not only streamline tax procedures for large businesses but also introduce a crucial change in the way partnerships and LLPs (Limited Liability Partnerships) handle payments to their partners.
No More TCS for High-Turnover Businesses: A Simplified Tax System
One of the most notable changes is the removal of Tax Collected at Source (TCS) for businesses with an annual turnover exceeding ₹10 crores. Under the previous framework, businesses were required to collect TCS on certain transactions. With the elimination of this rule, many businesses with larger turnovers can now focus on their operations without dealing with the administrative complexity of TCS, making the tax process more straightforward for these entities.
TDS Mandated on Partner Payments: New Compliance for Partnership Firms
However, the introduction of new regulations will require partnership firms and LLPs to adapt to a new Tax Deducted at Source (TDS) obligation. The new rules mandate that partnership firms deduct TDS on payments made to their partners. This includes salaries, remuneration, commission, bonus payments, and interest. The tax rate on these payments will be set at 10%.
These regulations will be applicable if the total annual payments to a partner exceed ₹20,000. For amounts under this threshold, no TDS will be deducted, keeping the rules in line with maintaining a balance between taxation and operational efficiency.
TAN Registration: An Added Compliance Obligation
In a related change, partnership firms and LLPs will also need to register for a TAN (Tax Deduction and Collection Account Number). This move ensures that all tax deductions are properly accounted for and remitted to the government. Firms that do not already have a TAN will need to apply for one to comply with these new tax requirements.
Immediate Impact on Chhattisgarh’s Business Environment
For businesses in Chhattisgarh, these reforms signal a shift towards more modernized tax practices. The abolition of TCS for high-turnover companies reduces the regulatory burden, making it easier for large businesses to operate. On the other hand, the new TDS obligations for partnership firms mean that these entities will have to reassess their financial processes and tax compliance systems.
The introduction of TDS on partner payments will also affect the accounting and payroll structures of partnership firms, as it introduces an added layer of tax compliance. With the new 10% TDS rule, businesses must adjust their financial practices to ensure correct deductions are made, which could involve investing in more advanced accounting solutions.
A Step Toward Greater Tax Efficiency and Transparency
Chhattisgarh’s decision to introduce these changes comes at a time when the need for tax reforms and transparency in the business world is increasingly crucial. With businesses now required to deduct TDS on payments to partners, the state is positioning itself as a forward-thinking player in tax modernization, making it easier for businesses to comply with the regulations.
However, as these rules come into effect, businesses must rethink their tax strategies, ensuring TDS compliance is met, especially those with partnership structures. In particular, businesses must keep track of their partner payments, ensure the proper collection of TDS, and keep a keen eye on annual payment totals to avoid fines or penalties for non-compliance.
What Chhattisgarh Businesses Must Do Now
TCS Removal: Businesses with turnovers above ₹10 crores no longer need to collect TCS.
TDS on Partner Payments: Firms must deduct 10% TDS on partner payments exceeding ₹20,000 annually.
TAN Registration: Ensure your business has a TAN to avoid compliance issues.
Record Keeping: Improved tracking of partner payments and tax deductions will be critical.
