Section 194T of Income Tax Act: TDS on Payments to Partners

Introduction

Section 194T has received a lot of attention in terms of new provisions in the Income Tax Act in FY 2025-26. The section deals with the imposition of TDS on payment by partnership firms to their partners. Whether you are a chartered accountant, a tax expert, or running a business, knowledge about section 194T is essential.

This Blog will cover everything about section 194T in a simplified way so that you can understand its implications.

What is Section 194T?

Section 194T deals with Tax Deducted at Source (TDS) on payments made by a firm to its partners.

Earlier, payments like:

• Salary to partners

• Remuneration

• Commission

• Bonus

• Interest on capital

were not subject to TDS.

With the introduction of Section 194T, such payments are now liable for TDS deduction if they cross a specified threshold.

Applicability of Section 194T

Who needs to deduct TDS?

• Partnership Firms

• LLPs (Limited Liability Partnerships)

On whom is TDS deducted?

• Resident partners of the firm

Nature of Payments Covered under Section 194T

TDS is applicable on the following payments:

• Partner’s salary

• Remuneration

• Commission

• Bonus 

• Interest on capital

 In simple terms, any payment (other than profit share) made by a firm to a partner falls under Section 194T.

TDS Rate under Section 194T

• TDS Rate: 10%

This is a flat rate applicable to all covered payments.

Threshold Limit for TDS Deduction

• ₹20,000 per financial year (aggregate)

TDS is applicable only if the total payments exceed ₹20,000 in a financial year.

When to Deduct TDS?

TDS should be deducted at the earlier of:

• Time of credit in books, or

• Time of payment

 Even if the amount is credited to the partner’s capital account, TDS applies.

Practical Example

Let’s understand this with a real-life scenario:

• A firm pays ₹1,00,000 as remuneration to a partner

• Total payment exceeds ₹20,000

TDS Calculation:

• ₹1,00,000 × 10% = ₹10,000

The firm must deduct ₹10,000 as TDS and pay ₹90,000 to the partner.

Important Exemption: Share of Profit

• Share of profit is fully exempt under Section 10(2A)

• No TDS is applicable on profit share

Section 194T applies only to non-profit payments.

Key Differences: Before vs After Section 194T

Compliance Requirements

• Deduction of TDS at applicable rate (10%)

• Deposit TDS with the government within due dates

•  File TDS returns (Form 26Q )

• Issue  TDS Certificate Form 16A to partners

Conclusion

Section 194T is not just another compliance requirement, it actually marks a significant shift in the taxation of partnership firms in India. Now payment to partners needs attention throughout the year.|

Firms need to build the habit of tracking, deducting, and reporting TDS consistently.A small ignorance may result in penalties

The good part? Once you set up a simple system and stay disciplined, it becomes routine.