CA. Keshav Kumar
Quick Summary
Payments made by a partnership firm or LLP to its partners - salary, remuneration, commission, bonus and interest remained outside the TDS net for decades. That position ended on 1 April 2025 with Section 194T of the Income-tax Act, 1961, inserted by the Finance (No. 2) Act, 2024. With the Income-ta
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FAQ :
From April 2026, the TDS obligation for partner payments shifts from Section 194T of the Income-tax Act, 1961, to Section 393(3) of the new Income-tax Act, 2025. The substance of the rule remains the same, but the statutory reference and reporting procedures have changed.
The TDS rate remains 10%, and the threshold is £20,000. This threshold is calculated on an aggregate basis for all types of payments (salary, remuneration, commission, bonus, and interest) to each partner during the tax year.
Yes, similar to the previous regime, crediting any sum to a partner's account, including their capital account, triggers the TDS obligation if the aggregate amount exceeds the £20,000 threshold. This applies even if no cash payment has been made.
Payments such as a partner's share of profit, capital withdrawals, and genuine expense reimbursements continue to be outside the scope of TDS. Also, interest paid to a partner is exclusively covered under Section 393(3) and not under the general interest TDS provisions.
No, partners cannot furnish a declaration (like the old Forms 15G/15H, now replaced by Form 393(6)) to avoid TDS deduction on payments covered under Section 393(3). The only recourse for a partner whose total income is below the taxable limit is to claim a refund through their tax return.
If a firm fails to deduct TDS on partner payments, 30% of the sum is disallowed when computing the firm's business income. Additionally, the firm will be liable for interest and penalties as an assessee-in-default, though this disallowance can be reversed in the year the tax is eventually paid.
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