The provisions relating to TDS on payments made by partnership firms to partners have been restructured under the Income-tax Act, 2025. The earlier Section 194T of the Income-tax Act, 1961 is now covered under Section 393(3) [Table: Sl. No. 7], effective from 1st April, 2026.
This restructuring retains the provisions relating to deduction of tax at source on payments such as salary, remuneration, commission, bonus or interest made to partners, while incorporating the new compliance framework introduced under Budget 2024.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(3)
- Table Reference: Table: Sl. No. 7
- Nature of Payment: Salary, remuneration, commission, bonus or interest paid to partner
- Earlier Section (IT Act 1961): Section 194T
- Return Form: 26Q
- Code (for return filing): 1067
Applicability of TDS
TDS is required to be deducted on payments made by a partnership firm (including LLP) to its partners. These payments include various forms of compensation arising out of partnership arrangements.
Payments Covered
Section 194T applies to the following payments made by a firm to its partners:
- Salary
- Remuneration
- Commission
- Bonus
- Interest (on capital account, loan account or any other account)
Time of Deduction
TDS shall be deducted at the earlier of:
- At the time of credit to partner’s account (including capital account)
- At the time of actual payment
Rate of TDS
- 10% on such payments
- 20% if PAN is not furnished, as per applicable provisions
Threshold Limit
Deduction applies only if aggregate payments to a partner exceed ₹20,000 in a financial year.
What is Not Covered
- Withdrawal of capital by a partner
- Distribution of profits among partners
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