3590606 - Section 194T: TDS on Payment by Partnership Firm to Partners

At present, the payments made by a firm (partnership firm or an LLP) to a partner are not subjected to TDS. Currently, the TDS is applicable only in the case where the payments are made to an employee of a firm. However, if you draw remuneration from firm as a partner or if you are taking payments in the form of interest, bonus or commission then the TDS provisions were not applicable on the said payments.

In the Union Budget of 2024, Finance Minister introduced Section 194T of the Income Tax Act, 1961. This section imposes a requirement for Tax Deducted at Source (TDS) on certain payments made to partners of a firm, including salary, bonus, commission, interest, or remuneration. At present no provision for TDS on such payments is there.

The proposed Section 194T is as follows:

“194T. (1) Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner(including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-tax thereon at the rate of ten per cent.

(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed INR 20,000 during the financial year.”

TDS Rate: 10% is the applicable TDS rate.

TDS Threshold Limit: If the aggregate amount paid to the partner in a financial year surpasses Rs 20,000 then only the TDS shall be applicable.

Timing of TDS Deduction: Section 194T specifies that TDS should be deducted at the earlier of the following two events:

• At the Time of Credit: When the sum is credited to the partner’s account, including capital accounts.
• At the Time of Payment: When the payment is made to the partner, whether through cash, cheque, draft, or other modes.

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