TDS on partner remuneration is 10% under section 194T, which a firm or LLP must deduct from FY 2025-26 when salary, remuneration, commission, bonus or interest to one partner adds up to more than ₹20,000 in the year. Before this section, firms paid partners in full and the partners paid tax on their own.
The rule does not touch a partner's share of profit, which is exempt in the partner's hands, or money drawn against capital. Timing is the tricky part, because many firms decide remuneration only when the books close. The rest of this page covers what is included, when to deduct, a worked example and the position from tax year 2026-27. For other sections, see the TDS rate chart.
Quick facts
Rate
10%Threshold
₹20,000 a year per partnerCovers
Salary, remuneration, commission, bonus, interest on capital or loansNot covered
Profit share and capital withdrawalsWho deducts
Partnership firms and LLPsStarts
FY 2025-26 (from 1 April 2025)Under the 2025 Act
Covered in the TDS table under section 393
194T TDS rate and what is included
| Payment to a partner | Under 194T? | Rate |
|---|---|---|
| Monthly salary or remuneration | Yes | 10% |
| Commission or bonus | Yes | 10% |
| Interest on capital | Yes | 10% |
| Interest on a loan given to the firm | Yes | 10% |
| Share of profit | No (exempt under section 10(2A)) | Nil |
| Drawings or return of capital | No | Nil |
The ₹20,000 test is on the total of all these payments to one partner in the year. A partner getting ₹5,000 a month as salary crosses it in the fifth month, and TDS then applies to the whole year's amount. Without a PAN, the rate rises to 20%.
When TDS on partner remuneration must be deducted
The deduction happens when the amount is credited to the partner's account, the capital account included, or when it is paid, whichever comes first. If remuneration for the whole year is credited on 31 March, TDS is due on that date and must be deposited by 30 April. If it is paid monthly, deduct monthly. A firm that credits interest on capital on the last day of the year cannot wait until the partners withdraw it.
The firm reports these deductions in Form 26Q every quarter and issues Form 16A to each partner. Partners claim the credit against tax on their remuneration and interest, which they show as business income.
Worked example: TDS on partners remuneration and interest
A three-partner trading firm, FY 2025-26. Partner Ravi gets ₹40,000 a month as remuneration (₹4,80,000 a year) and 12% interest on his ₹5,00,000 capital, credited on 31 March: ₹60,000.
- Total 194T payments: ₹5,40,000, well above ₹20,000.
- TDS on remuneration: 10% of ₹40,000 = ₹4,000 each month, deposited by the following 7th.
- TDS on interest: 10% of ₹60,000 = ₹6,000, deducted on 31 March and paid by 30 April.
- Total TDS for the year: ₹48,000 + ₹6,000 = ₹54,000.
Ravi's share of profit, say ₹3,00,000, carries no TDS and is exempt for him, since the firm pays tax on it.
Limits on what the firm can deduct as an expense
194T decides the TDS, but section 40(b) still decides how much the firm can claim. Interest to partners is allowed up to 12% simple a year, if the deed authorises it. Remuneration to working partners is allowed within limits linked to book profit: on the first ₹6,00,000 of book profit, ₹3,00,000 or 90% of book profit, whichever is higher, and 60% of the rest. TDS applies to the full amount paid, even the part the firm cannot deduct. Larger firms should also check whether a tax audit applies.
Section 194T under the Income-tax Act, 2025
| Point | FY 2025-26 | Tax year 2026-27 |
|---|---|---|
| Provision | Section 194T, 1961 Act | Section 393 table, 2025 Act |
| Rate | 10% | 10% |
| Threshold | ₹20,000 | ₹20,000 |
| Certificate | Form 16A | Form 131 |
Credits made during FY 2025-26 stay under 194T in the returns. From tax year 2026-27 the firm uses the new section and codes in its returns.
Common 194T mistakes
| Problem | Fix |
|---|---|
| Waiting to deduct until cash is withdrawn | Deduct on credit to the capital or current account |
| Deducting on the profit share | Profit share is exempt and outside 194T |
| Using 194A for partner interest | Partner interest is now under 194T |
| Year-end credit paid late | Deposit March TDS by 30 April to avoid interest |
Late deposits are charged interest; see TDS interest.
General information on Indian TDS for partnership firms, not advice for your firm. A chartered accountant can apply the current rules to your partnership deed.
Sources we checked
- Income-tax Act, 1961, section 194T
- Income-tax Act, 1961, section 40(b)
- Finance Act, 2025
- Income-tax Act, 2025, section 393
Frequently asked questions
What is the 194T TDS rate?
10% on salary, remuneration, commission, bonus and interest paid or credited by a firm to a partner, once the yearly total crosses ₹20,000.
Which partners remuneration TDS section applies?
Section 194T, from FY 2025-26. Before that, no TDS applied to partner remuneration, and partner interest was outside 194A.
Is TDS deducted on a partner's share of profit?
No. A partner's share of profit is exempt under section 10(2A) and is not covered by 194T.
Does 194T apply to LLPs?
Yes. An LLP is a firm for income tax, so payments to its partners follow 194T.
When is TDS on payment to partners due if remuneration is credited at year end?
On the date of credit, usually 31 March, and it must be deposited by 30 April.