Introduction
Tax Deducted at Source (TDS) on payments made by partnership firms to their partners has long been a critical compliance area. With the introduction of Section 194T effective from 1 April 2025, firms are expressly required to deduct TDS on any sum paid or credited to partners in the nature of salary, remuneration, bonus, commission, or interest. This blog unpacks the key provisions of Section 194T, outlines practical compliance steps, and provides answers to common questions. If you want seamless TDS compliance and expert guidance, read on—and discover how LEGALMAN can help you stay ahead of your tax obligations.
What Does Section 194T Cover?
Section 194T applies to every partnership firm that makes payments to its partners in the form of:
Salary or Remuneration
Commission or Bonus
Interest on capital or other sums
Any other payment analogous to the above
From 1 April 2025, a firm must deduct TDS at source at the time of crediting such amounts to the partner’s account (including their capital account) or at the time of payment, whichever is earlier.
Key Provisions at a Glance
| Provision | Details |
|---|---|
| Effective Date | 1 April 2025 |
| Who Must Deduct | Every partnership firm making covered payments to its partners |
| Timing of Deduction | At credit to partners’ account or at payment—whichever occurs first |
| Rate of TDS | 10 % |
| Threshold Limit | Aggregate payments exceeding ₹ 20,000 in a financial year |
| Lower/Nil Rate Certificates | Provisions of Sections 197/197A do not apply to Section 194T deductions |
Figure: Key highlights of Section 194T obligations for partnership firms.
Compliance Steps for Partnership Firms
Identify Covered Payments
Review all disbursements to partners—remuneration, interest on capital, bonuses, etc.—to determine if they exceed the ₹ 20,000 threshold in a year.Calculate TDS Liability
For amounts above the threshold, compute 10 % TDS on the entire sum payable or credited.Deduct TDS Timely
Ensure TDS is deducted when the amount is credited to the partner’s account or when paid, whichever comes first.Deposit TDS with the Government
Deposit the deducted tax by the 7th of the following month under challan code ITNS 281.File TDS Returns
Report Section 194T deductions in quarterly TDS returns (Form 26Q). Issue TDS certificates (Form 16B) to partners by the statutory due date.Maintain Records
Keep detailed registers of payments, TDS calculations, challan details, and return filings for audit and reference.
Frequently Asked Questions (FAQ)
1. When does Section 194T come into force?
It is effective from 1 April 2025, meaning any qualifying payments made on or after this date must comply with the new TDS requirements.
2. What constitutes the “aggregate” for the ₹ 20,000 threshold?
The “aggregate” includes the total of all covered payments (remuneration, interest, bonus, etc.) credited or paid to a partner during the financial year.
3. Can partners obtain a lower or nil TDS certificate?
No. Sections 197 and 197A certificates are not applicable under Section 194T, so the flat 10 % rate applies once the threshold is crossed.
4. What if TDS is not deducted or deposited on time?
Failure to deduct or deposit can attract interest, penalty, and prosecution under the Income Tax Act. Prompt compliance is essential to avoid such consequences.
5. How do we reflect Section 194T in our TDS return?
Report these deductions in Form 26Q, quoting Section 194T against each partner’s details, and issue Form 16B certificates accordingly.
Ensuring accurate TDS deduction under Section 194T is crucial for maintaining compliance and avoiding penalties. At LEGALMAN, our team of expert Chartered Accountants and tax professionals is ready to guide your partnership firm through every step—right from threshold analysis to TDS return filing.
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