Section 194T – New TDS Rule on Payments to Partners Applicable from 01-04-2025
Tax Deduction on Payments to Partners of a Firm
From 1st April 2025, a new section 194T will be applicable under the Income Tax Act. This section makes TDS mandatory on payments made by a firm to its partners.
Here’s what you need to know in simple words:
Who will deduct TDS?
Any partnership firm or LLP paying its partner.
On which payments?
TDS will be applicable on payments made to partners as:
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Salary
-
Remuneration
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Commission
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Bonus
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Interest
(Even if the amount is credited to the partner’s capital account)
When to deduct TDS?
TDS must be deducted at the time of credit or payment, whichever is earlier.
TDS Rate:
Flat 10%
Exemption limit:
If the total payment to a partner during the financial year is ₹20,000 or less, then no TDS is required.
Why this matters:
Earlier, payments to partners were not subject to TDS under Section 40(b). But now, from FY 2025-26, firms must deduct TDS before paying or crediting such amounts.
✅ Make sure your firm’s accounting and payroll systems are updated.
✅ Communicate this change with your partners.
Have questions or need help with compliance?
Contact MM Tax Club today!