Section 194T: TDS on Payment by Partnership Firms

Earlier, TDS was not levied on partners’ remuneration, interest, or commission. Firms’ payments to employees, on the other hand, were subject to TDS.

Budget 2024 added a new provision to the Act saying that certain payments made to a partner by a firm are subject to TDS deduction under Section 194T.

Section 194T states that any pay, bonus, commission, interest, or remuneration provided to a firm’s partner shall be liable to 10% TDS if the total amount for the relevant financial year exceeds Rs. 20,000.

This new TDS requirement applies to a variety of payments made to partners, including salary, bonus, commission, interest, and remuneration, beginning April 1, 2025.

Key Points of Section 194T

• Firms include LLPs under Section 2(23).
• TDS is to be deducted at the time of credit or payment whichever ever earlier.
• Provisions applicable from 1st April 2025.
• Threshold Limit – Rs. 20000.
• TDS Rate: 10% when aggregate payment crosses the threshold. TDS is applicable on the whole amount when a threshold is crossed. Example: If you pay a salary of Rs.5,00,000 to a partner, TDS will be deducted on Rs.5,00,000 and not Rs.4,80,000.

“It was common for Partnership Firms to pay salaries to partners at the time of ITR Filing. ITR Filing or Tax Audit (If Applicable) is practically the time when books of Accounts are finalized for Firms. This used to happen in July or September (In case Tax Audit is applicable). That’s why, the due date of filing ITR for an individual who is the partner of a firm on which tax audit was applicable was also 31st October. Now we need to close books and decide the Salary maximum by March so that interest on late payment of TDS is not applicable.” Says CA Pratibha Goyal, a Delhi-based Chartered Accountant.