TDS U/s 194 T

My query pertains to the applicability of Section 194T of the Income Tax Act. The relevant facts are as under:

One of my friends is carrying on business through a partnership firm in which he and his father are the only partners, sharing profits equally in the ratio of 50:50.

During the Financial Year 2025–26, the firm has paid:

  • Interest of ₹4,00,000 to each partner; and
  • Remuneration of ₹6,00,000 to each partner.

Accordingly, the total income in the hands of each partner, comprising interest and remuneration, amounts to ₹10,00,000.

Based on the above, the individual tax liability of each partner is effectively nil. However, if tax is deducted at source under Section 194T on the aforesaid payments, the same would result in a refund situation for the partners.

In this context, I seek clarification as to whether there exists any legally permissible method to avoid or dispense with the requirement of deduction of tax at source under Section 194T, or whether the firm is mandatorily required to deduct such tax and the partners may thereafter claim a refund.

Replies (4)
Quick Summary
Under Section 194T, firm must deduct TDS at 10 percent on partner interest and remuneration if it exceeds Rs 20000. Nil tax liability of partners does not remove TDS. Only option is lower or nil certificate under Section 197 or claim refund later.

Section 194T is applicable from FY 2025-26 on payment/credit by a firm to partners in the nature of salary, remuneration, commission, bonus or interest, where the aggregate amount exceeds ₹20,000 during the financial year.

In this case, each partner is credited/paid ₹4,00,000 interest and ₹6,00,000 remuneration, aggregating to ₹10,00,000. Hence, the firm is required to deduct TDS @ 10% under Section 194T. TDS per partner would be ₹1,00,000.

The fact that the partner’s final tax liability may be nil does not by itself remove the firm’s TDS obligation. The partner may claim refund in the ITR. Form 15G/15H should not be presumed to apply to Section 194T. The only safer route to avoid/reduce deduction would be a valid lower/nil deduction certificate, if available/applicable, otherwise TDS should be deducted.


This is very interesting discussion, I had same point in mind.

In this query, 94T TDS is mandatory, Partneres will to get  Rs.1,00,000 less in hand, due to TDS deduction, which is unjustified considering their Tax Liability is Nil.

Very intersting point. 

 

Under Section 194T, a partnership firm is generally required to deduct TDS on interest and remuneration paid to partners, regardless of whether the partners ultimately have nil tax liability, so the situation you described would typically lead to TDS and a subsequent refund claim; there is no blanket exemption (and Form 15G/15H is not applicable here), and the only practical way to avoid deduction is for the partners to obtain a lower or nil TDS certificate under Section 197, failing which the firm must deduct tax and the partners can later claim a refund in their returns.

 

Section 194-T (effective April 1, 2025) requires a partnership firm or LLP to deduct TDS at 10% on payments to a partner for salary, remuneration, commission, bonus, or interest, where the total payment to that partner during the year exceeds Rs 20,000. The TDS must be deposited by the 7th of the following month and is reported in Form 26Q, not 24Q, since partners are not employees. For FY 2025-26, this will show up in the Q4 26Q return due May 31, 2026, so filing it correctly and on time avoids the Rs 200 per day late fee under Section 234E.

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