TDS on Remuneration to Partners

TDS on Remuneration to Partners – Section 194T

Background:

Until FY 2024–25, no TDS was required on payments of remuneration, interest, or commission to partners by a partnership firm or LLP, as per general interpretation of Section 40(b) and absence of a specific TDS section.

However, the Finance Act, 2023 introduced Section 194T, effective from 1st April 2025, making TDS applicable on certain payments to partners.

Section 194T – Key Highlights

Applicability:

• Deductor: Partnership firm or LLP.
• Deductee: Resident partner (individual or entity) of the firm/LLP.
• Nature of Payment:
  • Remuneration,
  • Interest,
  • Commission or other payments covered under Section 40(b).

Rate of TDS:

• TDS is to be deducted at 10% on the amount credited or paid, whichever is earlier.

Threshold:

• The threshold limit for non deduction of TDS is Rs 20,000

Time of Deduction:

• At the time of credit to the partner’s account or payment, whichever is earlier.

Exemptions / Notes:

• Not applicable on share of profit distributed to the partners, as it is exempt under Section 10(2A).
• The partner must be a resident for Section 194T to apply. For non-residents, Section 195 is applicable.

Example:

A partnership firm pays ₹2,00,000 as salary and ₹1,00,000 as interest to a partner during FY 2025–26. The firm must deduct TDS @10% on ₹3,00,000 = ₹30,000 under Section 194T, assuming the partner is resident.

Compliance:

• TDS must be deposited within the due dates.
• Quarterly TDS returns (Form 26Q) must include these deductions.
• Deductee gets TDS credit in Form 26AS.