Section 194T: TDS on partner pay by firms and LLPs - guide 2026

Section 194T of the Income-tax Act, 1961 is a brand-new TDS provision that forces firms to deduct tax at source on the money they pay their own partners. Until 31 March 2025 such payments carried no TDS at all. This guide explains the rate, the ₹20,000 threshold, what is covered, what is left out, and the exact compliance steps a small firm must follow.

Section 194T is a tax-deduction-at-source rule that applies to any partnership firm and any Limited Liability Partnership (LLP) when it pays a partner. The firm becomes the deductor, the partner is the deductee, and tax is withheld before the money reaches the partner. It applies to every firm and LLP, regardless of turnover or whether a tax audit applies.

Section 194T was inserted by the Finance (No. 2) Act, 2024 and takes effect from 1 April 2025 (financial year 2025-26, assessment year 2026-27). The administering authority is the Income Tax Department under the Central Board of Direct Taxes.

The section reads, in substance: any firm paying a partner a sum in the nature of salary, remuneration, commission, bonus or interest on any account (including interest on capital or on loan) must deduct income tax at 10%. No deduction is required if the aggregate of such sums paid or credited to that partner in the financial year does not exceed ₹20,000.

The firm must deduct TDS at the earlier of two events:

1. the time of credit of the sum to the partner's account, including the capital account, or
2. the time of actual payment.

So even a year-end book entry crediting interest or remuneration to a partner's capital account triggers TDS, whether or not cash has moved.

• Share of profit distributed to partners. Profit share is exempt under Section 10(2A) of the Income-tax Act and is outside Section 194T.
• Capital withdrawals / drawings. Repayment or withdrawal of the partner's own capital balance is not income and is not subject to 194T.
• Payments below the threshold. If the total of salary, remuneration, commission, bonus and interest to a partner stays at or under ₹20,000 for the whole year, no TDS is due.

1. Get a TAN. A firm deducting TDS must hold a Tax Deduction and Collection Account Number. If your firm does not have one, see how to apply for a TAN.
2. Collect each partner's PAN. Without a valid PAN the rate jumps to 20% under Section 206AA.
3. Track the running total per partner. Add up salary, remuneration, commission, bonus and interest for each partner across the year.
4. Deduct 10% the moment the running total crosses ₹20,000, at credit or payment, whichever is earlier.
5. Deposit the TDS to the government, generally by the 7th of the next month (by 30 April for sums credited in March).
6. File the quarterly TDS return (Form 26Q) and issue Form 16A to each partner.
7. The partner then claims the credit in their own return after checking Form 26AS / AIS.

• Treating profit share as covered. Profit share is exempt under §10(2A) and must not be subjected to 194T.
• Deducting on drawings. Withdrawing one's own capital is not a 194T payment.
• Ignoring book entries. A year-end credit to the capital account triggers TDS under §194T even with no cash payout.
• Forgetting the per-partner test. The ₹20,000 limit is checked partner-by-partner, not for the firm as a whole.
• No PAN on file. Missing PAN means 20% TDS under §206AA, regardless of amount.

A small Pune consultancy LLP pays partner Dr. Shrawan Kumar Pathak ₹80,000 a month as remuneration plus ₹1,20,000 a year as interest on his capital. For FY 2025-26 his covered payments total ₹10,80,000, far above the ₹20,000 threshold. The LLP deducts 10% TDS, that is ₹1,08,000 across the year, deposits it monthly, files Form 26Q each quarter and hands Dr. Pathak a Form 16A. His separate profit share of ₹4,00,000 carries no TDS because it is exempt under Section 10(2A). When he files his return, the ₹1,08,000 already paid is adjusted against his final tax.

The rate is 10%. If the partner has not given a valid PAN, Section 206AA raises it to 20%, applied regardless of the payment amount.

It applies from 1 April 2025, that is financial year 2025-26. It was inserted by the Finance (No. 2) Act, 2024. Payments before that date carried no TDS under this section.

No. Profit share is exempt under Section 10(2A) of the Income-tax Act and is not covered by Section 194T. Only salary, remuneration, commission, bonus and interest are covered.

It is per partner. You add up all covered payments to each individual partner during the year. Once that partner's total crosses ₹20,000, TDS applies to the payments.

Yes. Section 194T has no turnover or tax-audit precondition. Every partnership firm and LLP making covered payments to partners must comply.

Yes. TDS is due at credit or payment, whichever is earlier, and the section expressly includes credit to the capital account. A book entry alone can trigger the deduction.

• Draft an RTI or grievance about a TDS mismatch with the free AI RTI Drafter.
• Apply for the firm's deductor number: TAN application guide 2026.
• If your TDS credit is missing, see how to check TDS refund status in Form 26AS.
• Learn to assert your information rights with The RTI Playbook.

• Income Tax Department - Income-tax Act, 1961, Section 194T (inserted by the Finance No. 2 Act, 2024).
• Finance (No. 2) Act, 2024 - new Section 194T, effective 1 April 2025.
• Income-tax Act, 1961, Section 10(2A) - exemption of partner's share of profit.
• Income-tax Act, 1961, Section 206AA - 20% rate where PAN is not furnished.