Free Section 194T TDS calculator India. Check TDS on partner salary, bonus, commission & interest. Covers ₹20,000 threshold & 10% rate. Instant result.

Section 194T is a Tax Deduction at Source (TDS) provision introduced by the Finance Act, 2024, requiring partnership firms and LLPs to deduct 10% TDS on specified payments to partners—including salary, remuneration, commission, bonus, and interest—when the aggregate exceeds ₹20,000 in a financial year. Effective from 1 April 2025, it marks the first time partner remuneration entered India's TDS framework.

If you run a partnership firm or an LLP, here's the change that will quietly affect your month-end routine: Section 194T now requires TDS on certain payments to partners. Not profits—payments like remuneration, salary, commission, bonus, and interest.

The headline rule is straightforward:

You must deduct TDS at 10% on covered payments to a partner once the total for that partner crosses ₹20,000 in the financial year.

The challenge isn't understanding the rule—it's implementing it correctly without disrupting partner cash flow, reconciling with Section 40(b) allowability, and meeting tight quarterly filing deadlines.

What Exactly Is Section 194T—and Why It Matters Now?

For years, partner remuneration and partner interest existed in a peculiar "TDS-free zone." Partners would report income in their own tax returns and pay tax through advance instalments or self-assessment. The government has now shifted this income into the mandatory withholding tax framework—meaning your firm becomes responsible for collecting and depositing tax upfront, not the partner later.

Think of it this way: Section 194T doesn't create a new tax. It redirects when tax is collected and who bears the compliance burden.

From hands-on experience with firms transitioning to this rule, this single change forces tightening in three critical areas:

• Partner payout planning (especially March-end scrambles)
• Clean payment classification in accounts and journals
• Quarterly TDS calendars and bank reconciliations

The legal foundation comes from Finance Act, 2024, Clause 62, formally implemented via CBDT Notification No. 22/2025 (dated 27 March 2025), which updated Forms 26Q and 27Q to accommodate Section 194T reporting.

Who Must Comply (and Who Gets No Exemption)

Section 194T applies universally to:

• Partnership firms (registered under the Indian Partnership Act, 1932)
• Limited Liability Partnerships (LLPs) (under the LLP Act, 2008)
• Every firm regardless of size—no turnover ceiling, no tax audit threshold
• Resident and non-resident partners (different reporting rules apply)

Here's the critical point: Many small firm owners assume, "Our turnover is below ₹1 crore, so TDS won't apply." That logic doesn't hold. Section 194T has zero turnover or audit thresholds. Even a modest three-partner consulting firm paying ₹30,000 annually to each partner must comply.

For authoritative guidance on firm classification, consult the Income Tax Department's Official Website.

Payments Covered Under Section 194T (and What Stays Outside)

Covered Payments (TDS Applies)

Section 194T specifically targets payments to a partner that amount to:

• Salary / Remuneration (per partnership deed)
• Commission (on transactions or periodic)
• Bonus (performance or periodic)
• Interest on Capital (whether credited or paid)
• Interest on Loan Accounts (any structured loan from partner)

The law uses the phrase "in the nature of," which means substance trumps labeling. If a payment functions like remuneration or interest, calling it a "special allowance" or "discretionary payout" won't work in an audit.

Excluded Payments (TDS Does NOT Apply)

These remain outside Section 194T:

• Share of Profit (remains exempt under Section 10(2A))
• Return of Capital (genuinely returning contributed capital)
• Drawings from Capital (simple withdrawals, not fresh payments)

Practical Distinction: If a payment is recurring, contractual, or contingent on the partnership's operations, it's likely covered. If it's a one-time return of what the partner invested, it typically isn't.

Verify your planned remuneration against allowable limits using the Section 40(b) Partner Remuneration Calculator—this prevents later Section 40(b) disallowances that complicate TDS reconciliation.

The ₹20,000 Threshold & TDS Rate (This Is Where Firms Slip)

TDS Rate Under Section 194T

Before deducting, verify partner PANs early using the PAN Card Validator to avoid defaulting to the punitive 20% rate.

The Threshold: ₹20,000 Per Partner, Per Year (Aggregated)

This threshold is not per individual payment and not per head.

Key Rule: Once a partner's combined covered payments (salary + commission + bonus + interest) exceed ₹20,000 in the financial year, TDS applies on the entire amount, not just the excess.

Example Timeline:

• April 2025: Partner credited ₹15,000 salary → Running total: ₹15,000 → No TDS yet
• May 2025: Partner credited ₹8,000 commission → Running total: ₹23,000 → Threshold crossed → TDS now due on full ₹23,000
• June 2025 onward: Each subsequent covered payment triggers TDS immediately

If your accounting team mistakenly deducts TDS only on the "₹3,000 excess over ₹20,000," the return will flag as incorrect in a TDS audit.

Use the Section 194T TDS Threshold Calculator to track cumulative payments in real-time and avoid this common trap.

When TDS Is Due—On Payment or Book Entry?

Section 194T follows the "earlier of" rule:

TDS Must Be Deducted at the Earlier of:

1. Credit to the partner's account (including capital, current, or loan account), OR
2. Actual Payment (cash, cheque, bank transfer, or any mode)

This dual trigger means a journal entry alone is sufficient to trigger TDS—no cash needs to change hands.

Real-World Implication: Many firms finalize partner remuneration calculations in May or June, then post backdated journal entries "as of 31 March." The critical date for TDS timing isn't the backdate—it's when the entry is actually posted/credited in the ledger. If you post the March entry in June, your TDS obligation (and interest exposure) extends to June.

This is why firms that plan payouts early and post entries promptly avoid late-deduction interest under Section 201(1A).

How to Calculate TDS Under Section 194T (Clean, Step-by-Step)

Most firms overthink this. Here's the practical workflow:

Step 1: Aggregate All Covered Payments Partner-Wise

Track throughout the year:

Total = Salary + Commission + Bonus + Interest on Capital (all heads combined)

Step 2: Check Against the ₹20,000 Threshold

If Total ≤ ₹20,000 → No TDS required
If Total > ₹20,000  → TDS applies (see Step 3)

Step 3: Apply the Correct TDS Rate

Valid PAN    → 10%
No PAN       → 20% (Section 206AA)

Step 4: Deduct and Deposit

TDS Amount = Total Covered Payments × Applicable Rate

Deposit the TDS by the 7th of the following month (or 30th April for March deductions).

Worked Example (Resident Partner with PAN)

Scenario: An LLP credits the following to one working partner during FY 2025–26:

Threshold Check: ₹1,85,000 > ₹20,000 ✅ TDS applies

TDS Calculation:

TDS = ₹1,85,000 × 10% = ₹18,500
Partner's net receipt = ₹1,85,000 − ₹18,500 = ₹1,66,500

The ₹18,500 TDS reflects in the partner's Form 26AS/AIS on the tax portal, and the partner claims it as a credit when filing their ITR.

To model your expected tax liability and compare it against TDS deducted, use the Old vs New Tax Regime Calculator.

Why Section 194T Exists When We Already Have 192 and 194A

This question surfaces constantly in partner forums, and the answer reveals a long-standing gap in the law:

Section 192 (TDS on Salaries)

• Applies to employees only
• Partners are expressly not employees under tax law
• Partner "salary" is legally distinct and never fell under 192

Section 194A (TDS on Interest)

• Applies to interest earned by individuals (savings accounts, fixed deposits, etc.)
• Excludes partner interest by design—it has its own legal treatment

Section 194T (New Bridge)

• Specifically covers partner remuneration, commission, bonus, and interest
• Closes a 73-year gap in the tax code (the Act was drafted in 1961 without anticipating formal partner TDS)
• Treats all partner income uniformly under one withholding framework

TDS Deposit & Filing Due Dates (Quick Reference)

Monthly TDS Deposit Due Dates

April → 7th May
May → 7th June
June → 7th July
July → 7th August
August → 7th September
September → 7th October
October → 7th November
November → 7th December
December → 7th January
January → 7th February
February → 7th March
March → 30th April (SPECIAL EXTENDED DATE)

Deposit using Challan ITNS 281.

Quarterly Form 26Q (TDS Return) Due Dates

(Non-resident partner payments use Form 27Q with the same due dates.)

TDS Certificate (Form 16A) Issuance

Issue Form 16A to each partner within 15 days of the quarterly Form 26Q due date.

Practical Note: If a partner later says "my TDS isn't in my Form 26AS," it's usually because the return was filed late or contains errors. A timely, accurate 26Q filing ensures TDS appears immediately on the tax portal.

Penalties for Non-Compliance (Costs Compound Quickly)

TDS defaults create a cascade of financial and legal consequences:

The Most Painful: The Section 40(a)(ia) disallowance hits firms hardest. If you pay ₹5 lakhs in partner remuneration without deducting TDS, the Income Tax Department adds back ₹1.5 lakhs to your taxable income—multiplying your tax liability beyond just interest and penalties.

Common Mistakes (and How to Sidestep Them)

Mistake 1: Deducting TDS Only on the Excess Above ₹20,000

Wrong Approach: Firm pays ₹25,000 total and deducts TDS on only ₹5,000 (the difference).

Why It Fails: The law requires TDS on the full ₹25,000 once the threshold is crossed, not just the surplus.

Correct Approach:

Total = ₹25,000 > ₹20,000 threshold
TDS = ₹25,000 × 10% = ₹2,500 (not ₹500)

Mistake 2: Ignoring Book-Entry Credits as TDS Triggers

Wrong Approach: "We credited ₹50,000 to the partner's capital account but didn't deduct TDS since no cash moved."

Why It Fails: Section 194T triggers on credit—a journal entry is sufficient. No cash movement needed.

Correct Approach: Deduct TDS at the moment the credit entry is posted, even if cash follows later or not at all.

Mistake 3: Assuming Small Firms Are Exempt

Wrong Assumption: "Our turnover is ₹80 lakhs and we're not under Section 44AB audit, so Section 194T doesn't apply."

Why It Fails: Section 194T has zero turnover or audit thresholds. All firms must comply.

Correct Approach: Check partner payment totals, not firm turnover.

Mistake 4: Not Tracking Cumulative Payments Across Payment Types

Wrong Approach: Track salary separately (₹15,000/month) and think it's below threshold. Forget to add commission (₹5,000/month), bonus (₹2,000), and interest (₹3,000).

Why It Fails: The law aggregates all covered heads. Total = ₹25,000, crossing the threshold.

Correct Approach: Use the Section 194T TDS Threshold Calculator to track all heads together automatically.

Mistake 5: Finalizing Partner Accounts Too Late

Wrong Approach: Books close in July; partners' March remuneration entry posted then.

Why It Fails: March TDS must be deposited by 30th April. Late posting triggers interest liability from the May 7 deadline onward.

Correct Approach: Finalize partner payouts before 30 April to ensure deposits are timely.

Mistake 6: Vague or Outdated Partnership Deeds

Wrong Approach: Deed reads: "Partners shall receive remuneration as mutually agreed."

Why It Fails: No specificity invites disputes with tax authorities on allowability under Section 40(b) and raises questions about TDS quantum.

Correct Approach: Update the deed with precise remuneration terms, limits, and conditions. Verify against Section 40(b) Partner Remuneration Calculator to ensure planned payouts stay within allowable limits.

Impact on Partners: Cash Flow, Advance Tax, and Refunds

Partners Now Receive Net-of-TDS Payments

A partner accustomed to receiving ₹2 lakhs annually now receives ₹1.8 lakhs (after 10% TDS of ₹20,000). This requires:

• Rethinking advance tax outgo (TDS reduces the partner's own advance tax burden)
• Adjusting personal cash flow around the deduction timing
• Monitoring Form 26AS/AIS to verify TDS credits appear correctly

Refunds Are Possible (Common for Lower-Income Partners)

If a partner's overall tax liability is below 10% (e.g., total income falls in the nil or 5% slab), the TDS deducted exceeds their final liability. They must:

1. File an ITR to claim a refund
2. Not skip filing just because TDS was deducted

Use the Old vs New Tax Regime Calculator to model expected tax liability vs. TDS deducted, and plan accordingly.

The Section 40(b) Allowability Mismatch (Most Complex Issue)

Here's a scenario that creates headaches:

• Firm deducts TDS on ₹8 lakhs in partner remuneration
• Post-audit, only ₹5 lakhs is allowable under Section 40(b)
• Firm disallows ₹3 lakhs in its return
• Partner includes only ₹5 lakhs in their return
• But TDS was deposited on ₹8 lakhs

Resolution: File a revised Form 26Q for Q4 to correct the over-deduction. The excess TDS can be:

• Adjusted against future TDS liabilities, or
• Refunded to the firm (with approval from authorities)

This is why calculating allowable remuneration before finalizing payments is critical. Use the Section 40(b) Partner Remuneration Calculator upfront to avoid post-closing corrections.

FAQs: Common Questions Answered

Q: What is the exact threshold for Section 194T TDS?

A: ₹20,000 per partner per financial year, aggregated across all covered payment types (salary, commission, bonus, interest). Once crossed, TDS applies on the entire amount, not just the excess. Use the Section 194T TDS Threshold Calculator to track in real-time.

Q: What is the TDS rate under Section 194T?

A: 10% for partners with a valid PAN. 20% if PAN is not available (Section 206AA). For non-residents, add applicable surcharge and cess. Verify PAN status early using the PAN Card Validator.

Q: From which date is Section 194T effective?

A: 1 April 2025, applicable from FY 2025–26 (AY 2026–27) onwards. No TDS obligation for payments made before 31 March 2025.

Q: Does Section 194T apply to LLPs?

A: Yes. The definition of "firm" includes both traditional partnership firms and LLPs.

Q: Is profit share exempt from Section 194T?

A: Yes. Pure profit distributions remain exempt under Section 10(2A). Section 194T applies only to remuneration, commission, bonus, and interest—not profit share.

Q: Does a book-entry credit (without cash) trigger TDS?

A: Yes. TDS is triggered at the earlier of credit or payment. A journal entry crediting the partner's account is sufficient.

Q: Who is responsible for TDS deduction and deposit?

A: The partnership firm or LLP making the payment is the deductor and is fully liable for timely deduction and deposit.

Q: Can a partner claim a refund if TDS exceeds final tax liability?

A: Yes. File the ITR and claim TDS credit. The refund is issued if TDS exceeds final liability. Check Form 26AS/AIS to confirm TDS appears correctly.

Q: Do firms not liable for audit need to comply?

A: Yes. Section 194T has no audit threshold. Compliance is mandatory for all firms if partner payments exceed ₹20,000.

Q: What forms are required for Section 194T compliance?

A: Form 26Q (resident partners), Form 27Q (non-residents), Form 16A (TDS certificate), and Challan ITNS 281 (deposit).