In this guide
Section 194T of the Income-tax Act, 1961 requires a firm to deduct tax at source (TDS) on certain payments to its partners. It took effect on 1 April 2025 and applies to covered amounts credited or paid in FY 2025-26.
The TDS rate is 10%. No deduction is required if the covered amount, or the aggregate of covered amounts for a partner during the financial year, does not exceed ₹20,000.
The TDS obligation belongs to the firm. A partner must separately report taxable income, including taxable remuneration or interest, in their own return. A partner’s share of the firm’s profit is not one of the payment types listed in Section 194T.
Which Payments Are Covered?
Section 194T covers payments to a partner in the nature of:
- Salary or remuneration;
- Commission or bonus; and
- Interest.
Do not assume that every transfer or credit in a partner’s account is covered. Identify and record what the payment represents.
When must the firm deduct TDS?
Deduct TDS when the amount is credited to the partner’s account, including a capital account, or paid, whichever happens first.
If the total covered payments exceed ₹20,000 during FY 2025-26, calculate TDS on the covered payments, not only on the portion above ₹20,000.
Example: A firm credits ₹15,000 as interest to a partner in July and ₹25,000 as remuneration in December. The total is ₹40,000. Once the threshold is exceeded, TDS on the total covered amount is ₹4,000 at 10%, less any TDS already deducted.
Deposit and Report the TDS
For amounts credited or paid by 31 March 2026, the Income-tax Act, 1961 applies. A firm generally must deposit TDS by the seventh day of the following month. TDS deducted in March is generally due by 30 April for a non-government deductor.
Report the deduction in the applicable quarterly statement, generally Form 26Q for FY 2025-26, and issue the prescribed TDS certificate to the partner.
| Quarter | Period | General Form 26Q due date |
|---|---|---|
| Q1 | April–June 2025 | 31 July 2025 |
| Q2 | July–September 2025 | 31 October 2025 |
| Q3 | October–December 2025 | 31 January 2026 |
| Q4 | January–March 2026 | 31 May 2026 |
These are the general due dates; check for any applicable extension. If a deposit, statement or certificate deadline was missed, review the relevant interest, fee or penalty and correct the filing as required.
For amounts credited or paid from 1 April 2026, check the Income-tax Act, 2025 and the applicable forms. Do not assume that the old-law form applies.
Records to Reconcile
Keep the following records together:
- Partnership deed or LLP agreement and amendments;
- Partner-wise ledgers and payment dates;
- Calculations for remuneration, commission, bonus and interest;
- TDS challans and deposit details;
- Quarterly statements and correction acknowledgements; and
- TDS certificates issued to partners.
Reconcile both the payment date and the ledger-credit date, since the earlier event determines when TDS is due. If the partner has not provided a PAN, check whether a higher TDS rate applies.
TaxClear’s ITR-5 filing guide for partnership firms and LLPs covers the firm’s return. See the income-tax challan payment guide for payment and challan correction steps.
Frequently Asked Questions
Is a partner’s share of profit covered by Section 194T?
No. Section 194T lists salary, remuneration, commission, bonus and interest. A share of profit is not among these payment types.
Does the ₹20,000 threshold apply to each payment?
No. Check the aggregate covered payments to each partner during the financial year.
Is TDS deducted only on the amount above ₹20,000?
No. When the threshold is exceeded, TDS applies to the covered payments, less any amount already deducted.
Does Section 194T apply to LLPs?
A firm, including an LLP treated as a firm for income-tax purposes, should check Section 194T when making covered payments to partners.
Does the firm’s TDS settle the partner’s tax?
No. The partner must report taxable income and claim the TDS credit in their own return, as applicable.
