Section 194T: TDS on Salary, Interest and Commission Paid to Partners
From 1 April 2025, firms and LLPs must deduct 10% TDS on remuneration, interest, commission and bonus paid to partners above ₹20,000 a year. Here is what is covered, what is not, and how to comply.
Section 194T: TDS on Payments to Partners
From 1 April 2025, every partnership firm and LLP must deduct 10% TDS on salary, remuneration, commission, bonus and interest paid or credited to a partner, if the total crosses ₹20,000 in a financial year. Before this, these payments were not subject to TDS. The firm needs a TAN, must deposit TDS monthly and file quarterly Form 26Q returns.
What does Section 194T cover?
The Finance (No. 2) Act, 2024 introduced Section 194T. It applies to payments by a firm (which includes an LLP) to its partners of:
- salary and remuneration
- commission
- bonus
- interest on capital or loans
| Payment | Covered by 194T? |
|---|---|
| Monthly remuneration to working partner | Yes |
| Interest on partner's capital | Yes |
| Interest on loan given by partner | Yes |
| Share of profit | No (exempt under Sec. 10(2A)) |
| Drawings / withdrawal of capital | No |
| Reimbursement of actual expenses | No |
What is the rate and threshold?
- Rate: 10%
- Threshold: ₹20,000 aggregate per partner in a financial year. Once it crosses, TDS applies on the whole amount.
- Without PAN: 20% under Section 206AA.
When must TDS be deducted?
At the time of payment or credit to the partner's account, whichever is earlier. This is where most firms get caught: many credit remuneration and interest to partners' capital accounts only on 31 March while finalising books. TDS is triggered on that date, and it must be deposited by 30 April.
If remuneration is paid monthly, deduct monthly and deposit by the 7th of the next month.
What are the compliance steps?
- Get a TAN if the firm does not already have one (Form 49B).
- Deduct 10% at payment or credit.
- Deposit by the 7th of the following month (30 April for March credits) using challan ITNS 281.
- File Form 26Q quarterly: 31 July, 31 October, 31 January and 31 May.
- Issue Form 16A to each partner within 15 days of the return due date.
Worked example
An LLP in Bengaluru has two designated partners. The deed provides:
- Remuneration: ₹1,50,000 per month each
- Interest on capital at 12%: Partner A has ₹40 lakh capital, so ₹4,80,000 a year
For Partner A for the year:
| Component | Amount | TDS @ 10% |
|---|---|---|
| Remuneration | ₹18,00,000 | ₹1,80,000 |
| Interest on capital | ₹4,80,000 | ₹48,000 |
| Total | ₹22,80,000 | ₹2,28,000 |
If the firm credits the interest only on 31 March but deposits TDS on 15 July, interest under Section 201(1A) at 1.5% a month for 4 months applies: ₹48,000 × 6% = ₹2,880. Late 26Q filing adds ₹200 a day under Section 234E.
Does this change the partner's total tax?
No. It only changes timing. Partners were always taxed on remuneration and interest under Section 28(v) as business income. Now 10% is withheld upfront, and the partner claims credit in their ITR. Partners who pay advance tax can reduce their instalments by the TDS amount.
What about the firm's deduction under Section 40(b)?
Section 40(b) still limits the remuneration and interest the firm can deduct:
- Interest: up to 12% simple interest a year
- Remuneration to working partners: on the first ₹6 lakh of book profit (or loss), the higher of ₹3 lakh or 90% of book profit; on the balance, 60% (limits revised by the Finance Act, 2024)
Also note Section 40(a)(ia): if TDS under 194T is not deducted or deposited, 30% of the payment is disallowed in the firm's return. That can cost more than the TDS itself.
Common mistakes
- Treating year-end capital-account credits as "not paid", so no TDS.
- Deducting on share of profit, which is exempt and not covered.
- Not revising the partnership deed to spell out remuneration and interest, which weakens the Section 40(b) claim.
How SP & SC helps
We apply for TAN, set up a monthly TDS calendar for your firm, file quarterly 26Q returns, issue Form 16A to partners and check the deed for Section 40(b) limits. See TDS return filing or ask for a fixed-fee quote.
Frequently asked questions
Does Section 194T apply to LLPs?
Yes. "Firm" under the Income Tax Act includes an LLP.
Is TDS deducted on the share of profit paid to partners?
No. Share of profit is exempt under Section 10(2A) and is outside Section 194T.
Is there TDS on drawings?
No. Drawings are withdrawals of capital or profit already earned, not remuneration or interest.
Does a small firm with no tax audit need to comply?
Yes. Unlike some TDS sections, 194T has no turnover-based exemption. Every firm is covered once the ₹20,000 threshold is crossed.
What if a partner's remuneration is under ₹20,000 a year?
No TDS is required for that partner, as long as the total of all covered payments stays within ₹20,000.
Written by
SP & SC Editorial
Editorial team at SP & SC Legal and Taxation Services — practising advocates, chartered accountants, and company secretaries publishing hands-on guidance from live client files.
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