Section 194T TDS on Partner Payments (2026): 10% Rate, ₹20,000 Limit & Form 26Q

Until 31 March 2025, a partnership firm could pay salary, interest or commission to its own partners without deducting any tax at source. That changed on 1 April 2025. Section 194T now makes every firm and LLP deduct 10% TDS on these payments once the year’s total crosses ₹20,000 for a partner. Profit share stays outside the rule, but almost everything else a partner takes from the firm is now in the TDS net.

Quick answer: Section 194T requires a partnership firm or LLP to deduct 10% TDS on salary, remuneration, commission, bonus and interest paid or credited to a partner, once the year’s total crosses ₹20,000. The rule started on 1 April 2025. Share of profit is not covered, and the TDS is reported in Form 26Q.

This guide explains Section 194T in plain words: what it covers, the ₹20,000 limit, the worked numbers, the firm’s compliance steps, what happens if the firm does not deduct, and how the partner claims the credit back.

What is Section 194T?

Section 194T sits in Chapter XVII-B of the Income-tax Act, 1961, next to the other TDS sections. It was inserted by the Finance (No. 2) Act, 2024 and applies from 1 April 2025, which is the start of FY 2025-26.

Before this section, partner payments were a gap in the TDS system. TDS on salary under Section 192 never applied, because a partner is not an employee of the firm. TDS on interest under Section 194A never applied either, because interest paid by a firm to its partner was kept outside that section. So a working partner could take lakhs a year as remuneration or interest on capital with no tax collected at source. Section 194T closes that gap.

The section applies to any person, being a firm. That covers partnership firms and LLPs alike. It applies only to payments to partners who are residents of India. Payments to a non-resident partner fall under Section 195 instead, with the rate set by the Double Taxation Avoidance Agreement.

Section 194T TDS rate and threshold

The numbers are simple. There are only four to remember.

Item	Rule for FY 2025-26
TDS rate (PAN given)	10% of the covered payment
TDS rate (PAN not given, or inoperative PAN)	20% under Section 206AA
Threshold	No TDS if the total covered payments to one partner are ₹20,000 or less in the financial year
When to deduct	At the earlier of credit to the partner’s account or actual payment

The threshold is worked out partner by partner, on the total of all covered payments for the year. Salary plus interest plus commission plus bonus are added together for one partner. If that total crosses ₹20,000, TDS applies.

Two points about the threshold catch firms out:

1. Once the limit is crossed, TDS applies to the full amount, not only the part above ₹20,000. If a partner’s total covered payments are ₹60,000 for the year, the TDS is 10% of ₹60,000, which is ₹6,000. It is not 10% of ₹40,000.
2. The firm deducts at the time the amount is credited or paid, whichever comes first. A year-end journal entry that credits remuneration to a partner’s capital account on 31 March triggers TDS on that date, even if the cash is paid later.

The 10% rate is flat. No surcharge and no health and education cess are added at the time of deduction. Cess is worked out later, in the partner’s own tax calculation when the return is filed.

What does Section 194T cover?

The section names five kinds of payment. If the firm pays a partner any of these, the amount counts toward the ₹20,000 limit and toward the TDS:

• Salary paid to a partner
• Remuneration — the usual monthly payment to a working partner
• Commission paid to a partner
• Bonus paid to a partner
• Interest — on capital, on a loan from the partner, or on any other account the partner holds with the firm

What does Section 194T not cover?

Just as important is what stays outside the section:

• Share of profit. A partner’s share of the firm’s profit is exempt in the partner’s hands under Section 10(2A). It is not a payment for services, and Section 194T does not touch it. This is the single most common confusion around the new rule.
• Drawings. Money a partner withdraws from the firm for personal use is not salary, remuneration or interest. It is a withdrawal of the partner’s own capital and stays outside TDS.
• Capital contribution and capital repayment. Genuine capital transactions — money put in or taken back as capital — are not covered payments.
• Payments before 1 April 2025. Only amounts paid or credited on or after 1 April 2025 count. A payment made in March 2025, even if it relates to work done later, is outside the section, and it does not count toward the FY 2025-26 ₹20,000 limit.

How is the partner’s income taxed?

A partner’s remuneration and interest from the firm are not taxed as salary. The Act says so in plain terms: salary, bonus, commission or remuneration due to a partner from the firm is not treated as salary income. Instead, Section 28(v) brings the receipt under the head “Profits and gains of business or profession”.

That matters for two reasons. First, the partner reports this income under the business head in the ITR, not under salary. Second, the TDS deducted under Section 194T is only an advance collection. The partner’s final tax is worked out at the partner’s own slab rate, and the TDS is adjusted against it — so a partner whose total income is low gets the TDS back as a refund.

The Section 87A rebate does not stop the TDS. Even if a partner’s income is within the ₹12 lakh limit for the rebate in the new regime, the firm must still deduct 10% when the payment crosses ₹20,000. The rebate is applied at the final tax calculation stage, not at the time the firm decides whether to deduct. The partner then claims the excess back in the return.

Worked examples

Example 1 — below the limit. A partner gets ₹8,000 interest on capital and ₹10,000 remuneration in FY 2025-26. The total is ₹18,000, below ₹20,000. No TDS is deducted. The partner still reports ₹18,000 as business income in the return.

Example 2 — above the limit. A partner gets ₹50,000 remuneration and ₹10,000 interest on capital in FY 2025-26. The total is ₹60,000. TDS is 10% of the full ₹60,000, which is ₹6,000. The partner receives ₹54,000 and reports ₹60,000 as income. The ₹6,000 sits in Form 26AS as a tax credit.

Example 3 — monthly remuneration. A working partner is paid ₹25,000 a month as remuneration. The firm deducts 10% — ₹2,500 — each month when the amount is credited to the partner’s account. By year-end, the firm has deducted ₹30,000 on ₹3,00,000 of remuneration. The partner claims the ₹30,000 as credit in the return.

Example 4 — no PAN. A partner gets ₹60,000 in covered payments but has not given a PAN, or the PAN is inoperative. TDS is 20% under Section 206AA — ₹12,000 instead of ₹6,000. Keep PAN active and linked with Aadhaar so this does not happen.

Example 5 — profit share plus remuneration. A partner gets ₹4,00,000 as share of profit and ₹1,20,000 as remuneration. TDS applies only to the ₹1,20,000 remuneration — ₹12,000 at 10%. The ₹4,00,000 profit share is exempt under Section 10(2A) and has no TDS.

What the firm must do: compliance steps

Section 194T turns every firm with partner payments above ₹20,000 a year into a TDS deductor. The steps are the same standard TDS workflow used for contractor and professional payments under Sections 194C and 194J:

1. Get a TAN. If the firm does not already hold a Tax Deduction Account Number, apply in Form 49B on the NSDL/TIN 2.0 portal. No TDS can be deposited or reported without a TAN.
2. Deduct at 10% at the time of credit or payment. For monthly remuneration, deduct each month on the credit date. For year-end interest or bonus, deduct on the date of the journal entry.
3. Deposit the TDS by the 7th of the next month. TDS deducted in April is deposited by 7 May, and so on. For TDS deducted in March, the due date is 30 April. Deposit through Challan ITNS 281 on the TIN 2.0 portal, selecting Section 194T as the nature of payment.
4. File Form 26Q every quarter. This is the quarterly TDS statement for non-salary payments to residents. The due dates are:

Quarter	Period	Form 26Q due date
Q1	April–June	31 July
Q2	July–September	31 October
Q3	October–December	31 January
Q4	January–March	31 May

1. Issue the TDS certificate to each partner. Download Form 16A from the TRACES portal and give it to the partner within 15 days of the quarterly return due date — by 15 August, 15 November, 15 February and 15 June. From 1 April 2026, the certificate is called Form 131 under the new Act.

The CBDT updated Forms 26Q and 27Q through the Income Tax (Seventh Amendment) Rules, 2025, notified on 27 March 2025, so that firms can report 194T deductions in the quarterly statement. The first quarterly window for this section was July 2025, for Q1 of FY 2025-26.

What happens if the firm does not deduct TDS?

Skipping the deduction is costly for the firm:

• 30% of the payment is disallowed as a business expense under Section 40(a)(ia). If the firm paid ₹3,00,000 remuneration without deducting TDS, ₹90,000 of that expense cannot be claimed, and the firm’s taxable profit goes up by that much.
• Interest is charged on the TDS that should have been deducted, from the date it was due until it is actually deposited.
• Late filing fee of ₹200 a day applies if Form 26Q is filed late, under Section 234E of the 1961 Act (Section 427 of the 2025 Act from 1 April 2026), capped at the TDS amount for the quarter. Our guide to a missed Q2 TDS return explains the fee and interest in detail.

There is one more limit firms often miss. Section 40(b) caps how much of the partner remuneration and interest the firm can claim as a deduction at all. After the Finance Act, 2024, the firm can deduct remuneration up to 90% of the first ₹6 lakh of book profit plus 60% of the balance, and interest up to 12% a year simple interest. Section 194T works on its own: TDS is deducted on the gross amount credited to the partner, not only on the part the firm can claim under Section 40(b).

Can the partner avoid the TDS?

Form 15G or 15H does not work here. Those forms are meant for interest and dividend TDS, not for partner payments, and a firm should not accept them against Section 194T.

The only way to lower or stop the deduction in advance is a lower or nil TDS certificate under Section 197. The partner applies to the Assessing Officer, and if the certificate is granted, the firm deducts at the lower rate shown in it. Without such a certificate, the firm must deduct the full 10%, and the partner’s remedy is to claim the credit or refund in the return.

Section 194T under the new Income-tax Act, 2025

From 1 April 2026, the Income-tax Act, 2025 replaces the 1961 Act for transactions in Tax Year 2026-27. Section 194T moves into the consolidated TDS section: Section 393(3), Table Sl. No. 7, with Payment Code 1067. The rate stays 10% and the threshold stays ₹20,000 — only the section number and the forms change. Form 26Q becomes Form 140, and Form 16A becomes Form 131.

For payments made up to 31 March 2026, keep using the old reference, Section 194T of the 1961 Act, in challans and returns. For payments on or after 1 April 2026, use Section 393(3) Sl. No. 7 and Payment Code 1067. The complete old-vs-new section numbers table lists every TDS mapping in one place.

Frequently asked questions

What is Section 194T?

Section 194T is a new TDS provision, inserted by the Finance (No. 2) Act, 2024 and effective from 1 April 2025. It requires a partnership firm or LLP to deduct 10% TDS on salary, remuneration, commission, bonus or interest paid or credited to a partner, when the total for that partner crosses ₹20,000 in a financial year. Before this section, no TDS applied to payments a firm made to its own partners.

What is the TDS rate under Section 194T?

The rate is a flat 10%. No surcharge or cess is added at the time of deduction. If the partner has not given a PAN, or the PAN is inoperative, the rate is 20% under Section 206AA. The rate has stayed at 10% since the section began.

What is the threshold limit under Section 194T?

No TDS is deducted if the total covered payments to one partner are ₹20,000 or less in a financial year. The limit is per partner, per year, and it adds up all five kinds of payment — salary, remuneration, commission, bonus and interest. Once the total crosses ₹20,000, TDS is cut on the full amount, not only on the part above the limit.

Is TDS applicable on the share of profit paid to partners?

No. A partner’s share of profit is exempt under Section 10(2A) and stays outside Section 194T. Only salary, remuneration, commission, bonus and interest are covered. A firm that deducts TDS on the profit share is deducting on money that is not covered by the section.

Does Section 194T apply to LLPs?

Yes. The section applies to any person, being a firm, and that includes Limited Liability Partnerships. An LLP that pays remuneration or interest on capital to its partners must deduct 10% TDS in the same way as a partnership firm, once the ₹20,000 limit is crossed.

Which form is used to file TDS under Section 194T?

The firm reports the deduction in Form 26Q, the quarterly TDS statement for non-salary payments to residents. The due dates are 31 July, 31 October, 31 January and 31 May for the four quarters. From 1 April 2026, Form 26Q is replaced by Form 140 under the Income-tax Act, 2025.

Can a partner claim a refund of TDS deducted under Section 194T?

Yes. The TDS is not the partner’s final tax. The partner reports the remuneration or interest under the head “Profits and gains of business or profession” in the ITR, and the TDS appears as a credit in Form 26AS and AIS. If the TDS is more than the partner’s total tax, the extra is refunded. If the partner’s income is below the taxable limit, the whole TDS comes back.

Is Form 15G or 15H valid to avoid Section 194T TDS?

No. Form 15G and 15H are not meant for partner payments, and a firm should not accept them against Section 194T. The only way to reduce the deduction in advance is a lower or nil deduction certificate under Section 197. Otherwise the firm must deduct 10% and the partner claims the credit in the return.

Official sources

• Income Tax Department, e-filing portal — https://www.incometax.gov.in
• Income Tax Department, TDS provisions and rates — https://www.incometaxindia.gov.in
• TRACES (TDS Centralized Processing Cell), TDS statements and certificates — https://www.tdscpc.gov.in

Reviewed by Asuthod Rathod, CA · Last updated: 9 November 2026

Disclaimer: This article explains tax rules in simple words for general information. Tax law changes often, and your own case may have details that change the result. Check the official portals above or speak to a qualified tax professional before acting on it.