TDS U/s 194 T

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.