For as long as partnership firms have existed in India, money moving from the firm to its own partners sat outside TDS. Salary to an employee was deductible at source; remuneration to a partner was not. Section 194T, introduced by the Finance (No. 2) Act, 2024 and effective from 1 April 2025, closes that gap — and because it lands on exactly the businesses least likely to have a compliance department, it has become one of the most commonly missed obligations we see in new clients' books.
What 194T covers
Any firm — a partnership under the 1932 Act or an LLP — paying a partner salary, remuneration, commission, bonus or interest must deduct tax at 10% once the total of such payments to that partner exceeds ₹20,000 in the financial year. The deduction happens at credit or payment, whichever is earlier — and for partner remuneration, credit commonly happens as a year-end book entry, which is precisely where firms get caught. A credit to the partner's capital account counts.
Two payments stay outside the net: drawings and repayment of capital, because neither is income in the partner's hands, and the share of profit itself, which is exempt under the long-standing exemption for partners. The line to hold on to: if the firm claims it as a deduction and the partner returns it as income, 194T applies to it.
The threshold is lower than it looks
₹20,000 a year is not a working partner's remuneration — it is barely a month's. Interest on capital at 12% crosses it on a capital balance of under ₹1.7 lakh. In practice, almost every firm that pays its partners anything at all is over the threshold, which means almost every firm now needs a TAN, a monthly deposit habit, and a quarterly return that includes its own partners.
What compliance actually looks like
- A TAN, if the firm somehow never needed one before.
- 10% deducted on partner payments and book credits as they happen — including the year-end remuneration entry.
- Deposit by the 7th of the following month, like every other TDS section.
- Reporting in the quarterly TDS return, with the partner's PAN.
- Form 16A to each partner, whose own advance-tax working should now count the credit.
Miss it and the usual machinery applies: interest at 1%/1.5% a month under section 201, late-filing fees on the return, and — the expensive one — disallowance of 30% of the expense under section 40(a)(ia) in the firm's own computation. For a firm paying ₹12 lakh of partner remuneration, that is ₹3.6 lakh added back to taxable income for skipping a deduction that costs nothing to make.
We run TDS end to end — deposits, returns and Form 16A included →
The year-end trap
Most small firms decide final partner remuneration only when the accounts are closed, months after 31 March, and book it as a single back-dated credit. Under 194T that entry triggers deduction as at the credit date it is booked against — so a remuneration entry passed in September for the year ended March creates a deposit that is already months late the moment it is recorded. The fix is procedural, not clever: credit remuneration monthly or quarterly at a provisional figure inside the deed's limit, deduct as you go, and true up at year end.
If your firm books partner payments and has never filed a TDS return for them, The Consulting Crew can set the cycle up, clear the backlog and keep it running month to month. Get in touch before the next quarter's return, not after.
This article is general information, not tax advice. Rules, limits and rates can change; confirm the current-year specifics for your business before acting.