TDS on Payments to Partners - SECTION 194T
Introduction of Section 194T: TDS on Payments to Partners
Until 31/03/2025, payments made by a Partnership Firm to its partners were not subject to Tax Deducted at Source (TDS). However, with the insertion of Section 194T into the Income Tax Act, 1961, this landscape has changed significantly. This new provision mandates TDS on payments made by firms to their partners. In this article, we will explore the scope of Section 194T, including applicable TDS rate, threshold limit, due date of payment of TDS, and other key compliance requirements.
Applicability of provisions of Section 194 T
In accordance with the Finance Bill, 2024, the provisions of Section 194T shall come into effect from 1st April 2025.
These provisions shall apply to all partnership firms, including Limited Liability Partnerships (LLPs).
Scope of Payment U/s 194T
The following payments by a firm to its partners are covered in section 194T:
Remuneration
Salary
Commission
Bonus
Interest on loan account
Interest on capital account
Threshold Limit
TDS shall be deductible when the aggregate amount credited or payments made, whichever earlier by a firm to its partner exceeds ₹20,000 in a financial year.
Time of Deduction of TDS
TDS shall be deducted at the earlier of the following dates:
At the time of payment to the partner, or,
At the time, the said amount is credited to the partner’s account (both capital account & current account) in the books of the firm.
Note: Interest on Partner’s Capital account - The TDS on interest on Partner’s Capital account can be deducted and paid annually if the deed of partnership allows to pay interest annually.
TDS Rate
Tax shall be deducted at the rate of 10% on payment made or amount credited by the firm to its partner.
Who is Responsible for Deduction of TDS
The responsibility for deducting tax under Section 194T lies with the firm making payment to the partner.
Payment of TDS
The due date for payment of TDS u/s 194 is the 7th day of the following month in which TDS is deducted.
Exception: Due date for payment of TDS in the month of March will be 30th April.
For Example -
Salary of ₹ 50,000 credited to the partner's account in the month of April.
TDS at the rate of 10%, amounting to ₹ 5,000, was deducted in the same month.
Accordingly, the due date for payment of the TDS will be 7th May (i.e. 7th day of the following month)
TDS Return
TDS Returns for the section 194T shall be filed on quarterly basis.
The due date for TDS return is the last day of the month following the end of the quarter in which TDS is deducted.
The due dates will be as follows:
For 1st Quarter (Apr - June) = 31st July
For 2nd Quarter (July - Sep) = 31st October
For 3rd Quarter (Oct - Dec) = 31st January
For 4th Quarter (Jan - Mar) = 31st May
Difference from Section 192
Section 192 of the Income Tax Act applies only to TDS on income classified as “Salaries,” explicitly excluding payments made to partners—such as salary, bonus, commission, or remuneration, as clarified by Explanation 2 to Section 15.(annexure 2)
To bridge this gap, Section 194T is introduced. It mandates a 10% TDS on payments made to partners, including salary, bonus, commission, and interest and explicitly including Salaries to the Partner.
Penalty
Penalty for not Deducting Tax at source [201 (1A)]
Interest @ 1% p.m. from the date on which tax was deductible to the date on which tax is actually deducted
Penalty for Non-Payment of Tax [201 (1A)]
Interest @ 1.5% p.m. from the date on which tax was actually deducted to the date on which tax is actually paid.
Fees for late filing of Quarterly TDS Return (U/s 234E)
Fees of ₹ 200 for every day during which the default continues.
Such fees shall not exceed the amount of tax deductible.
Penalty for failure to furnish Quarterly TDS Return [u/s 271H(1)(a)]
A penalty of ₹ 10,000, which may be extended to ₹ 1,00,000, shall be payable if a person fails to submit a quarterly TDS return on or before the due date.
This penalty is in addition to the fees under section 234E.
Consequences of Late Payment
Under Section 40(a)(ia), 30% of any sum payable to a resident, subject to TDS—shall be disallowed as an expense if:
Tax has not been deducted at source, or
Tax has been deducted but not deposited with the Central Government on or before the due date.
Lower/nil TDS rate Certificate
The provisions of section 197/197A are not applicable in the case of deductions made under section 194T.
ANNEXURE 1
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 fina
ncial year.
Annexure 2
The following income shall be chargeable to income-tax under the head "Salaries"-
(a)any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b)any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c)any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
[Explanation 2. - Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary" for the purposes of this section.] [ Inserted by Act 18 of 1992, Section 6 (w.e.f. 1.4.1993).]
Disclaimer: This article is based on the information available as of May 07, 2025. The content reflects the author's interpretations of provisions of the Income Tax Act,1961. While every effort has been made to ensure the accuracy of the information, the author does not guarantee its completeness or reliability. Readers are advised to consult with a professional tax advisor for specific advice tailored to their individual circumstances.