Budget 2024 introduced Section 194T, making TDS mandatory on payments to partners. Most partnership firms still haven't updated their compliance. Here's everything you need to know.
Section 194T was introduced by the Finance Act 2024 and became effective from 1 April 2025. It requires every firm — partnership, LLP, or AOP — to deduct TDS on salary, commission, bonus, remuneration, or interest paid to a partner.
Rate: 10% flat
Threshold: ₹20,000 per financial year
Who deducts: The firm, at the time of credit or payment (whichever is earlier)
TAN required: Yes — the firm must have a TAN
All of the following are covered under Section 194T:
1. Confusing with Section 194A
Interest paid by a firm to a partner is not covered under Section 194A (which covers interest to non-partners). Section 194T is the specific provision for partner interest.
2. Applying TDS only on salary, not interest
Many firms are deducting on remuneration but missing interest on capital — both are squarely covered.
3. No TAN registration
Firms that had no prior TDS obligations need to register for TAN before they can comply with Section 194T.
4. Partnership deed not updated
Some firms have deeds that pre-date Section 194T. While the deed doesn't need updating for TDS purposes, the books need to reflect TDS deductions.
Partners must now include TDS credit when filing their ITR. The TDS reflects in Form 26AS and AIS automatically once the firm files its 26Q return.
The full Section 194T episode — with worked examples, journal entries, and 3 case scenarios — is Episode 7 of TDS Mastery on MentorClub.
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