Section 194T TDS on Partner Remuneration: Rate, Threshold, and Effective Date (FY 2025-26)

10% TDS under Section 194T of the Income-tax Act, 1961 applies to salary, bonus, commission or remuneration paid by a firm or an LLP to its partners, effective 1 April 2025 (FY 2025-26 / AY 2026-27), once the total paid to a single partner in a financial year exceeds ₹20,000. The firm is the deductor, and the deduction is reported quarterly in Form 26Q. Before this date, partner remuneration attracted no TDS at all.

New w.e.f. 01-04-2025: Section 194T creates the TDS obligation on partner remuneration for the first time — before FY 2025-26, a firm had no obligation to deduct TDS on salary, bonus or commission paid to partners. The ₹20,000 threshold applies per partner per financial year.

What the law actually requires

Section 194T was inserted by the Finance (No. 2) Act, 2024 with effect from 1 April 2025. It closes a long-standing compliance gap: historically, a partnership firm paying its partners salary, bonus, commission or remuneration had no TDS obligation on those payments, because partner remuneration is not "salary" (it is taxable in the partner's hands as income from business or profession under Section 28(v) read with Section 40(b)) and did not fit the professional-fee head of Section 194J. From FY 2025-26, that gap is closed by a dedicated provision.

The threshold is per partner, not per firm

The ₹20,000 limit is applied separately for each partner for the financial year. It is an aggregate test, not a per-payment test: a firm that pays a partner ₹5,000 a month crosses ₹20,000 in the fifth month, and from that point TDS applies to the entire amount paid during the year, not merely the excess above ₹20,000. There is no de minimis exemption for small firms — a two-partner firm is treated exactly like a fifty-partner firm.

What is covered, and what is not

The words "salary, bonus, commission or remuneration, by whatever name called" are deliberately broad, but they do not include interest on capital. Interest credited to a partner's capital account falls under Section 194A (TDS on interest), not Section 194T.

⚠️ — The Finance (No. 2) Act, 2024 also amended the exemption for interest paid by a firm to its partners under Section 194A(3)(iii). Confirm the current TDS treatment of interest on partner capital for your FY before applying it — the correct section, rate and threshold for interest must be verified against the Act as amended.

LLP partners: covered, but confirm the specific position

The Income-tax Act treats an LLP as a firm for tax purposes, and Section 194T's reference to "a firm" is read in that context. In practice, LLPs are required to deduct TDS under Section 194T on partner remuneration just as partnership firms are.

⚠️ — confirm the specific application of Section 194T to LLP partners against the Finance (No. 2) Act 2024 text and any CBDT clarification, since the section's drafting refers to "firm" and the LLP mapping is by interpretation.

Worked example: Sharma & Associates LLP

Sharma & Associates LLP has two working partners. One partner draws a fixed monthly remuneration of ₹1,50,000; the other draws ₹60,000 a month.

Both partners cross the ₹20,000 threshold in their first month, so TDS is deducted from the first rupee. The LLP deposits ₹21,000 a month (₹15,000 + ₹6,000) by the 7th of the following month and reports both partners in the quarterly Form 26Q statement. For FY 2025-26 the aggregate deduction is ₹2,52,000.

Practical implications for the firm

• New obligation, not a change of rate. If your firm has never deducted TDS on partner remuneration, FY 2025-26 is the first year you must. Set up the deduction from April, not at year-end — a retrospective deduction surfaces in the tax audit (Clause 34 of Form 3CD) and invites scrutiny.
• Non-deduction costs 30% of the expense. If TDS was deductible but not deducted, or deducted but not deposited before the Section 139(1) due date, 30% of the expenditure is disallowed under Section 40(a)(ia) — on top of the fact that partner remuneration is already subject to the Section 40(b) ceiling. That is a double hit no firm should take.
• Interest keeps running. Non-deduction triggers interest under Section 201(1A) — 1% per month from the date the tax was deductible to the date of deduction, and 1.5% per month from deduction to deposit. A missed month costs more than the TDS itself.
• The return is Form 26Q. Partner remuneration, interest, professional fees and every other non-salary payment sit in the same quarterly statement. File by 31 July, 31 October, 31 January and 31 May. Late filing costs ₹200 per day under Section 234E, capped at the TDS amount.

FAQ

Does Section 194T apply to interest paid to a partner on capital?
No. Section 194T covers salary, bonus, commission and remuneration only. Interest on partner capital is governed by Section 194A. the current 194A treatment for partner interest, which the Finance (No. 2) Act 2024 amended.

Is the ₹20,000 threshold per partner or for the firm as a whole?
Per partner. Each partner's aggregate remuneration for the financial year is tested separately against ₹20,000.

We crossed ₹20,000 for a partner in November. Do we deduct only on the excess?
No. Once the aggregate crosses ₹20,000, TDS at 10% applies to the entire remuneration paid to that partner during the financial year, not just the amount above the threshold.

Does an LLP have to deduct under Section 194T?
Yes. The Income-tax Act treats an LLP as a firm, and Section 194T applies to partner remuneration paid by LLPs. Confirm the specific position with your CA before the first deduction.

What rate applies if the partner has not furnished a PAN?
20% under Section 206AA, on the gross amount, instead of 10%. Obtain the partner's PAN and verify it on the portal before the first payment.

When must we deduct — at credit or at payment?
At the earlier of credit to the partner's account or actual payment. If remuneration is credited on 31 March but paid in April, the deduction obligation arises on 31 March.

Sources

• Section 194T, Income-tax Act 1961 (inserted by Finance (No. 2) Act 2024, w.e.f. 01-04-2025)
• Section 194A, Income-tax Act 1961 (TDS on interest; partner-interest treatment amended by Finance (No. 2) Act 2024)
• Sections 28(v) and 40(b), Income-tax Act 1961 (taxability and deduction ceiling of partner remuneration)
• Section 40(a)(ia) (disallowance of 30% on non-deduction), Section 201(1A) (interest), Section 206AA (PAN-linked rate), Section 234E (late fee)

Use the Section 194T checker to confirm whether a payment to a partner triggers TDS. For a TDS and ROC compliance audit of your firm, visit pvtltd.co.

Need help with this?

Our team handles the paperwork. You focus on your business.