Section 194T: New TDS Rules for Partners (2025-26)

New TDS Shield for Partners

Mastering Section 194T | Effective from FY 2025–26

Starting 1 April 2025, the landscape of partnership taxation has fundamentally shifted. For the first time, payments made by Partnership Firms and LLPs to their own partners are subject to Tax Deducted at Source (TDS) under the newly introduced Section 194T.

1. What Payments are Covered?

✅ Subject to TDS

  • Salary or Remuneration
  • Interest on Capital or Loans
  • Commission or Bonus

🚫 Not Covered

  • Share of Profit (Exempt u/s 10(2A))
  • Capital Withdrawals

2. Threshold and Rate

The firm must apply a flat 10% TDS. If the partner fails to provide a valid PAN or ID, this rate jumps to 20%.

The ₹20,000 Rule: TDS is mandatory only if the total payments to a partner exceed ₹20,000 in a financial year. Note that once this limit is crossed, tax is deducted on the entire amount, not just the excess.

3. Practical Example

CASE STUDY: PARTNER A

Q1: Firm credits ₹15,000 interest.
Result: No TDS (Total < ₹20k).

Q2: Firm credits ₹10,000 salary.
Result: Total reaches ₹25,000.

The Deduction: 10% of ₹25,000 = ₹2,500. This is deducted from the current payment and sent to the Govt.

4. Timing of Deduction

Firms must deduct TDS at the earlier of:

  • The time of actual payment (Cash, Cheque, UPI).
  • The time of crediting the sum to the partner’s account (including capital/current accounts).

5. Frequently Asked Questions

Q: Does this apply to sleeping partners? Yes. It depends on the payment nature (Interest/Salary), not the partner's activity level.
Q: Can I apply for lower deduction? Yes, partners can apply for a "Lower Deduction Certificate" under Section 197.
Q: What if the firm is in a loss? TDS is still mandatory if you credit interest or salary to the partner's account.

6. Critical Deadlines (March Rush)

For March 2026 transactions, the clock ticks faster:

  • TDS Deposit Due Date: 30 April 2026
  • TDS Return (Q4) Filing: 31 May 2026
Feature Details
Section194T (Income Tax Act, 1961)
TDS Rate10% (20% without PAN)
Threshold> ₹20,000 annually
March Deadline30 April 2026