Section 194T TDS on Partner Remuneration and Interest: 2026 Guide

Section 194T changed the compliance process for partnership firms and LLPs by bringing specified payments to partners within TDS from 1 April 2025.

Because the Income-tax Act, 2025 came into force on 1 April 2026, accountants now need to understand both the familiar search term “Section 194T” and the new-law reporting reference.

Which partner payments are covered?

The old-law Section 194T covers sums in the nature of:

• salary;
• remuneration;
• commission;
• bonus; and
• interest

paid or credited by a firm to its partner.

What is the TDS rate and threshold?

The TDS rate is 10%.

No deduction is required where the aggregate of the covered sums for a partner does not exceed ₹20,000 during the financial year.

Once the statutory threshold is crossed, the provision should be applied in accordance with the law rather than treating ₹20,000 as a simple deduction from the payment amount.

When should TDS be deducted?

TDS is triggered at the earlier of:

• credit of the amount to the partner, including credit to the capital account; or
• actual payment.

This is particularly important at year-end. A firm cannot avoid the deduction point merely because remuneration or interest has been credited through a journal entry and will be paid later.

What changed from 1 April 2026?

Payments or credits up to 31 March 2026 are governed by the Income-tax Act, 1961 and the Section 194T reference.

For payments or credits on or after 1 April 2026, TDS is governed by the Income-tax Act, 2025. Non-salary TDS provisions are consolidated into Section 393 and the relevant table item should be used in new-law compliance.

The Government has clarified that the transition is primarily a consolidation and renumbering exercise; rates and monetary thresholds have broadly been retained.

Do not confuse TDS with deductibility of remuneration

Deducting TDS does not automatically make partner remuneration or interest deductible while computing the firm's taxable income.

The separate rules governing allowability still need to be checked, including the partnership deed, working-partner conditions, prescribed remuneration limits and the permitted interest rate.

Year-end accounting checklist

• Prepare partner-wise remuneration and interest calculations.
• Check the partnership deed.
• Identify the date of credit to partner accounts.
• Check the TDS threshold partner-wise.
• Use the correct old-law or new-law reference based on the triggering date.
• Reconcile TDS with partner capital/current accounts.

assureOffice Financial Builder can help present partner capital accounts and partnership financial statements in a structured manner. The TDS computation and tax deductibility still require professional review.

For the wider transition, see old TDS sections vs Sections 392 and 393.

For partner payments, accounting entry date, TDS timing and tax deductibility are three connected but separate checks.