Section 194T: TDS on Partner Remuneration & Interest (Firms & LLPs)
2026-06-30 · 7 min read · by a CA firm
Section 194T is the change that turned almost every partnership firm and LLP in India into a TDS deductor. From 1 April 2025, a firm paying a partner salary, remuneration, commission, bonus or interest must deduct 10% TDS once those payments cross a small annual threshold. There is no turnover exemption — even a two-partner firm with modest income is caught. Under the Income-tax Act 2025 it sits within Section 393 (payment code 1067).
Who must deduct
Every partnership firm and LLP that pays a partner. Unlike 194Q or the audit-linked sections, 194T has no turnover or size threshold for the firm — the obligation applies regardless of how small the firm is. If your firm did not previously have a TAN, you now need one.
What is covered — and what is not
Covered: salary, remuneration, commission, bonus, and interest paid to a partner — including interest on a partner’s capital account or on a loan from the partner.
Not covered: a partner’s share of profit, which is exempt under Section 10(2A), and drawings or repayment of capital. These are not income in the partner’s hands in the same way, so 194T does not apply to them.
Rate and threshold
The rate is 10% (or 20% if the partner has not furnished a valid PAN). TDS applies once the aggregate of covered payments to a partner exceeds ₹20,000 in the financial year. The threshold is tested per partner. Once it is crossed, TDS applies on the full amount of covered payments to that partner, not merely the part above ₹20,000.
The year-end credit trap
This is where firms get caught. TDS is due at the earlier of credit or payment, and crediting interest or remuneration to a partner’s capital account is a credit. So even a year-end book entry that credits partner interest or remuneration — with no cash actually paid — triggers 194T. Firms that finalise partner remuneration only at year-end must deduct and deposit TDS on that credit by the normal due date.
The link with Section 40(b)
Section 40(b) caps how much partner remuneration and interest a firm can claim as a deduction. 194T is separate: you must deduct TDS on the partner payments you actually make, even on amounts that are within the 40(b) limit and fully deductible. Treat the two as independent — 40(b) governs the firm’s expense claim, 194T governs withholding.
Worked example
A firm pays a partner remuneration of ₹6,00,000 and interest on capital of ₹1,50,000 during FY 2026-27 — total ₹7,50,000, well over ₹20,000. TDS at 10% on ₹7,50,000 = ₹75,000. If ₹1,50,000 of interest is only credited to the capital account on 31 March, TDS on that portion is still due on that credit date.
Common mistakes
Not registering a TAN because the firm never deducted TDS before; ignoring interest credited to capital accounts at year-end; deducting only on the excess over ₹20,000 instead of the full amount; and missing the ₹20,000 test because payments are spread across several heads — remember it is the aggregate per partner that counts.
Compliance checklist
Use payment/return code 1067, deposit by the 7th of the next month (30 April for a March credit), and report in Form 140 each quarter. Issue the partner a TDS certificate (Form 130, the old 16A). Late deduction or deposit attracts interest under 201(1A); a late return attracts the 234E fee.
Frequently asked questions
Which firms must deduct? Every firm and LLP paying a partner — no turnover threshold.
What is covered? Salary, remuneration, commission, bonus and interest (incl. on capital). Profit share and drawings are not.
Rate and threshold? 10% (20% without PAN) once aggregate partner payments exceed ₹20,000 in the year, on the full amount.
Does a year-end capital-account credit count? Yes — credit triggers TDS even without cash payment.
For the at-a-glance rate, code and due dates, see the 194T section guide. Related: TDS glossary and 194A (interest).
General information for FY 2026-27 under the Income-tax Act 2025, not advice on your specific case. Verify against the latest law or talk to a CA.