For decades, a partnership firm could pay its partners salary, remuneration or interest on capital with no TDS. Budget 2025 changed that. The new Section 194T brings these payments into the TDS net from 1 April 2025. If you are a partner or run a firm/LLP, you need to know exactly when to deduct.
Section 194T at a Glance
Section 194T — Key Facts (FY 2025-26)
| Who deducts | Partnership firm or LLP |
| Payment covered | Salary, remuneration, bonus, commission, interest to a partner |
| Threshold | ₹20,000 per partner / year |
| Rate (with PAN) | 10% |
| Rate (no PAN) | 20% |
| Effective from | 1 April 2025 (FY 2025-26) |
| Form / Return | Deposit by 7th of next month · Form 26Q · Form 16A to partner |
What Is Covered — and What Isn't
This is the part firms get wrong most often. 194T applies to amounts that are deductible for the firm and taxable for the partner:
- Covered: partner's remuneration/salary, bonus, commission, and interest on capital or loan given by the partner.
- Not covered: the partner's share of profit, which is exempt under Section 10(2A). No TDS on profit distribution.
- Not covered: repayment of the partner's capital itself (that's a return of capital, not income).
The ₹20,000 limit is per partner, on the aggregate
Add up all covered payments to a partner for the year. Once the total crosses ₹20,000, deduct 10% on the whole amount, not just the part above ₹20,000. The limit resets each financial year and is checked separately for each partner.
A Worked Example
Suppose a firm pays Partner A ₹50,000/month remuneration plus ₹1,20,000 interest on capital for the year:
The firm deducts ₹72,000 over the year (practically, on each credit/payment), deposits it, and Partner A claims the ₹72,000 as TDS credit in their personal ITR.
Check 194T (and 9 other sections) instantly
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Open TDS Calculator →When to Deduct and Deposit
- Deduct at the time of credit to the partner's account (including the capital account) or actual payment — whichever is earlier.
- Many firms credit remuneration/interest at year-end; the deduction is triggered at that credit even if cash is paid later.
- Deposit the TDS by the 7th of the next month (for March credits, by 30 April).
- File Form 26Q quarterly and issue Form 16A to each partner. The firm needs a TAN.
Why It Matters for Firms
- Missing the deduction attracts interest of 1% / 1.5% per month and a possible disallowance of the expense.
- Firms that previously never filed TDS returns must now obtain a TAN and start quarterly compliance.
- Partners should expect TDS to show up in their Form 26AS / AIS and adjust their advance-tax planning.