Section 194T came into effect from 1st April, 2025. It deals with TDS deduction of certain payments made to a partner by a firm. TDS at the rate 10% needs to be deducted for salary, bonus, commission, remuneration, interest on capital and interest on loan.
No TDS needs to be deducted when the payment does not exceed Rs. 20,000 during the financial year. This article explains in detail, the payments covered, TDS rates and practical implications of TDS under section 194T.
The following payments by a firm to a partner are covered in Section 194T:
The rate at which TDS is to be deducted is 10%. The TDS is to be deducted only in the cases where the aggregate payments to a partner exceeds Rs. 20,000 in a financial year.
Condition | TDS Rate | TDS Threshold |
Aggregate payments to partners such as interest, bonus, commission or remuneration | 10% | > Rs. 20,000 in a financial year |
The TDS is to be deducted at earlier of the following dates:
Note: Credit to the partner’s capital account will also be considered for determining the date in (1) above.
The introduction of Section 194T will now require partners to plan their finances as the applicability of TDS will impact their cashflows. This brings a significant amendment to the Income Tax Act by increasing tax compliance for firms and partners.