Introduction of section
In the Union Budget of 2024, Finance Minister Nirmala Sitharaman introduced Section 194T of the Income Tax Act, 1961. A new Section 194T proposed as per Clause 62 of the Finance (No. 2) Bill, 2024, extends TDS requirements to these previously exempt payments. Earlier, there is no TDS applicability on remuneration, interest, commission etc. made to partners under the Act. Such payments are outside the purview of TDS regulations.
Provisions of section 194T is effective from 1st April, 2025 on various payments made by firms to its partners.
Applicability of the provisions of section 194T
(1) Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-tax thereon at the rate of ten per cent.
(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year.”.
Key Provisions of Section 194T
| Nature of payments includes | Salary, remuneration, commission, bonus, and interest on any account. |
| When to deduct TDS | At the time of credit or at the time of payment which ever is earlier. |
| TDS Rate | 10% |
| Threshold Limit | Rs 20,000/- |
Point to be note
1. These payments include salary, remuneration, commission, bonus, and interest on any account.
2. TDS provisions are not applicable on the drawings or capital repayment to partners.
3. Provisions are applicable partnership firms and Limited Liability Partnerships both.
4. TDS will be applicable on whole amount if aggregate payments exceed the threshold limit.
5. Interest includes loan account or capital account both.
Example:
| Mr. R is a partner in Niraj & Associates. During the financial year 2025-26, Mr. R receives the sum of Rs. 18,000 as a remuneration, interest etc from the firm. | TDS is not required to deduct as the total payment is below the threshold limit of Rs 20,000 |
| Mr. R is a partner in Niraj Associates. During the financial year 2025-26, Mr. R receives the sum of Rs. 18,000 as a remuneration, 2000 as a interest from the firm. | TDS is not required to deduct as the total payment is below the threshold limit of Rs 20,000 |
| Mr. R is a partner in Niraj Associates. During the financial year 2025-26, Mr. R receives the sum of Rs. 18,000 as a remuneration and Rs 20,000 as a interest from the firm. | TDS is required to deduct as the total payment is below the threshold limit of Rs 20,000.
TDS liability 38000x 10% = Rs 3800 |
| Mr. R is a partner in Niraj Associates. During the financial year 2025-26, Mr. R receives the sum of Rs. 18,000 in June as a remuneration and Rs 20,000 as a interest in the month of March from the firm. | TDS is required to deduct as the total payment is below the threshold limit of Rs 20,000.
TDS liability 38000x 10% = Rs 3800 TDS shall be deducted in the Month of March, not in the month of June. Since the aggregate payments for the year exceed ₹20,000 in the month of March. |
Section 192 v/s 194T
As per Explanation 2 of Section 15 of Income Tax Act, Any salary, bonus, commission or remuneration, by whatever name called, of a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section. Payments made to partners are not included under the head of salary as defined by Explanation 2 to Section 15. Hence, no TDS liability was there on partner’s salary or remuneration u/s 192
Conclusion
Section 194T is designed and modernize in our tax laws to enhance tax compliance, transparency and accountability in financial transactions between firms and their partners.
Also Read:
TDS under Section 194T of Income Tax Act, 1961
TDS Section 194T: Key Provisions & Implications for Partnership Firms & LLPs
Everything about new TDS section 194T
Surprising Amendment from Budget: Introduction of Section 194T
Partner’s Remuneration Section 194T Payment TDS Calculator for FY 2024-25 AY 2025-26
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