TDS applicability on Interest on Capital to Partners.

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This discussion clarifies the applicability of TDS on interest paid to partners, particularly concerning the new Section 194T of the Income Tax Act. It explains that Section 194T generally applies to payments to partners, including interest, regardless of residency status, to prevent profit manipulation. For non-resident partners without an Indian PAN, a 20% TDS rate is suggested, or Section 195 might apply if they have a PAN, with Section 194A being less likely.

SUDHEEP M

SUDHEEP M (Querist)
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02 July 2025 Sir,

After the inorporation of new section 194T of income tax act 1961, I want to clarify TDS applicability in respect of the following transactions.

1. Interest on Capital Rs. 1,50,000 paid to Mr. A (Resident partner)
2. Interest on Capital of Rs. 2,25,000 paid to Mr. B (Non Resident Partner)
3. Interest on Loan of Rs. 3,05,000 paid to Mr. C (Resident Partner)
Here, which TDS sections was applicable. Need clarification whether 194T, 195 or 194A?

CA Kedar Sakhardande

CA Kedar Sakhardande (Expert)
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10 July 2025 Hello

Section 194T is applicable on payments to partners in whatever nomenclature - Salary, Remuneration, Commission, Bonus interest . So TDS is applicable under section 194T. The intention of this specific provision is to curtail the year end profit adjustments. Also check partnership deed to check remuneration and interest payable to partneres if any (so that it should not contradict with actuals. Now my opinion on your queries

1 Section 194T ressident partner
3 Section 194T ressident partner
2. Section 194T is silent whether partner is ressident or non ressident so below are scenarios
If he has no PAN in india - 20% TDS
if he has pan in india i feel tax to be deducted under section 195 (194A is not applicable in this case) I am more biased towards section 195 instead section 194T in this case. But again refer to the partnership deed

SUDHEEP M

SUDHEEP M (Querist)
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10 September 2026 What was the rate of TDS in case of Interest on capital paid to an NRI

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