Section 194T Compliance Guide

The April 30 Deadline: A New Compliance Era for Partnership Firms (Section 194T)

If you are a partner in a firm or an LLP, the month of April just got a lot more important. Under the newly implemented Section 194T, the 30th of April is now the "D-Day" for depositing TDS on payments made to partners for the closing month of the financial year.

1. What is Section 194T?

Previously, payments like salary, bonus, or interest to partners were not subject to TDS. However, to track high-value transactions and ensure tax transparency, the government introduced Section 194T.

The Rule: A partnership firm or LLP must deduct TDS at 10% if the aggregate amount of salary, remuneration, commission, bonus, or interest credited or paid to a partner exceeds ₹20,000 in a financial year.

2. Why is April 30th the "Crucial Date"?

In the world of TDS, the "March Exception" applies. While TDS for every other month must be deposited by the 7th of the following month, the rules for March are different:

The Deadline: TDS deducted on payments/credits for the month of March must be deposited with the government by April 30th.

The "Credit" Trap: Most firms credit salary or interest to partners’ accounts on March 31st during year-end closing. Even if the actual cash is paid in May or June, the TDS must be deducted on March 31st and paid by April 30th.

3. Key Compliance Calendar

Action Item Deadline
Deposit TDS (for March) April 30
File Quarterly Return (Form 26Q) May 31
Issue TDS Certificate (Form 16A) June 15

4. Essential Requirements for Firms

  • TAN Registration: You cannot deduct or deposit TDS without a Tax Deduction and Collection Account Number (TAN). If your firm doesn't have one, apply immediately.
  • Point of Deduction: TDS must be deducted at the earlier of two events: when the amount is credited to the partner's account in the books or when the actual payment is made.
  • Threshold Monitoring: Keep a close eye on the ₹20,000 limit. Even if a partner’s monthly salary is small, if the annual total (salary + interest + bonus) crosses ₹20,000, the 10% TDS kicks in.
  • Form 16A Issuance: Partners will need these certificates to claim credit in their personal Income Tax Returns (ITR).

5. How This Affects Partners

Cash Flow Impact: Partners should be prepared to receive 10% less in their "take-home" remuneration or interest, as that portion goes directly to the government.

Tax Credit: The TDS deducted by the firm will reflect in the partner's AIS (Annual Information Statement) and Form 26AS. Partners can use this credit to offset their final tax liability when filing their personal ITR.

6. Penalties for Non-Compliance

Missing the April 30th deadline is costly:

  • Interest: 1.5% per month interest is charged for late payment.
  • Late Filing Fee: ₹200 per day for late filing of the TDS return (Form 26Q).
  • Disallowance: If TDS is not deducted, 30% of the expense (salary/interest paid to the partner) may be disallowed for the firm, leading to higher tax for the business.

Frequently Asked Questions (FAQs)

Q1: Does Section 194T apply to profits shared with partners? No. TDS is only applicable to salary, remuneration, commission, bonus, or interest. The share of profit remains exempt under Section 10(23C) and does not attract TDS.
Q2: What if the partner does not provide a PAN? If a partner fails to furnish their PAN to the firm, the TDS rate jumps from 10% to 20% under Section 206AA.
Q3: Is the ₹20,000 limit per payment or per year? The ₹20,000 limit is an aggregate annual limit per partner. If the sum of all applicable payments (Salary + Interest + Bonus) crosses ₹20,000 in a financial year, TDS must be deducted on the entire amount.
Q4: Can a partner provide Form 15G/15H to avoid TDS? Generally, no. Form 15G/15H is for "Interest other than interest on securities" (Section 194A). Since payments to partners fall under the specific Section 194T, these forms are not currently applicable for avoiding this TDS.
Q5: Does this apply to working partners only? No. It applies to all partners (working, sleeping, or nominal) as long as they receive interest, salary, or any of the specified payments from the firm.
Q6: What if the firm is in a loss and doesn't pay salary, but only interest? TDS is triggered at the time of credit or payment, whichever is earlier. Even if the firm is in a loss, if interest is credited to the partner's account in the books of accounts, TDS must be deducted.