New TDS Rule for Partners 2026

New TDS Rule for Partners

What Happens After April 1, 2026?

If you own a business as a partner in a firm or an LLP, there is a big change in how you receive your money. Starting from the financial year 2025-26 (continuing through April 2026), the government has introduced a new rule called Section 194T.

What is the New Change?

Simply put, the partnership firm must now deduct 10% tax (TDS) before giving certain payments to a partner. This isn't an extra tax; it’s just a way for the government to collect tax in advance. You can claim this amount back or adjust it when you file your personal Income Tax Return (ITR).

Which Payments are Covered?

  • Salary or Remuneration: The monthly or yearly pay for your work.
  • Interest on Capital: The interest you earn on the money you invested.
  • Bonus: Any extra performance-based pay.
  • Commission: Any percentage-based earnings you receive.
Important Note: You do not have to pay this tax on your Share of Profit. The profit you get from the firm remains tax-free in your hands.

The "₹20,000 Rule"

The firm only needs to deduct this tax if the total amount paid to a partner is more than ₹20,000 in a single year.

Feature Details
Tax Rate 10% (with PAN) / 20% (without PAN)
Exemption Limit No tax if total payment is under ₹20,000
Effective Date Active for the April 2026 cycle
Who Deducts? The Partnership Firm or LLP

What Should You Do?

For the Firm

Ensure you have a TAN. Deposit the 10% tax monthly and file quarterly reports (Form 26Q).

For the Partner

Provide your PAN card to avoid a 20% deduction. Check your Form 26AS to see your tax credits.

Conclusion: This rule is all about transparency. By April 2026, every firm should have its accounting system updated. It’s a small step in paperwork, but a big change in cash flow management.