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From April 1, 2026, every partnership firm and LLP must deduct 10 percent TDS under Section 194T on salary, remuneration, commission, bonus, and interest paid to partners, aggregated per partner, once the ₹20,000 annual threshold is crossed. Missing the deduction triggers Section 201(1) assessee-in-default liability plus a 30 percent Section 40(a)(ia) disallowance of the partner expense.
Track cumulative credits per partner across all payment types — monthly remuneration, commission, bonus, and annual interest on capital — and trigger 10 percent TDS on the first credit after the running total crosses ₹20,000. Deduct at credit to the partner current account or payment, whichever is earlier, including year-end bulk credits. Report in Form 140 under Section 393(3) Serial 7, payment code 1067, and issue Form 131 certificates to each partner.
Per-partner cumulative credit counter across remuneration, commission, bonus, and interest. Payment code 1067 mapping for Form 140 under the 2025 Act. Form 131 certificate workflow per partner per quarter.
Correct 194T deductions from the first qualifying credit, protected partner expense deduction with no Section 40(a)(ia) disallowance, reconciled Form 168 credits under the partner's PAN, and timely Form 131 certificates for each partner's ITR claim.
Prior to April 2026, partnership firms and LLPs had no TDS obligation on payments made to their own partners. Section 194T changes this entirely. Introduced via the Finance (No. 2) Act, 2024, this provision requires every firm to deduct TDS at 10% on salary, remuneration, commission, bonus, and interest credited or paid to a partner when the aggregate exceeds ₹20,000 in a financial year. For firms with 5 or more partners drawing remuneration, the compliance burden is immediate and non-trivial.
What Section 194T Covers
Section 194T applies to any sum paid or credited by a firm to a partner by way of salary, remuneration, commission, bonus, or interest on capital. The deduction obligation arises at the earlier of credit to the partner’s capital account or actual payment. The threshold is ₹20,000 per financial year in aggregate across all payment types. Once the cumulative amount crosses this threshold, TDS at 10% applies to the entire amount, not just the excess.
Under the Income Tax Act 2025, Section 194T maps to Section 393(3), Table Serial No. 7, with Payment Code 1067. This is a wholly new provision with no predecessor section. Firms filing TDS returns for Tax Year 2026-27 must use the new payment code; quoting the old section reference will trigger FVU validation errors.
Because 194T itself is a new 2026 provision without legacy data, firms will not have FY 2025-26 deductions under this section. However, the reconciliation approach is the same one used for every other section that sits inside the 1001–1092 payment code range. The payment codes 1001–1092 reference lists where code 1067 fits alongside the broader set, and the cross-era TDS reconciliation guide covers how a dual-mode configuration (legacy, payment_code, or dual) handles 194T entries in Form 168 once the firm files its first post-April 2026 Form 140 return. The final code assignment will be confirmed once CBDT publishes the consolidated payment code schedule.
Where Reconciliation Complexity Arises
Partner Current Account Tracking
Firms typically credit partner remuneration monthly to the partner’s current account in the books. Interest on capital is credited annually or semi-annually. Because Section 194T uses an aggregate ₹20,000 threshold, the firm must track cumulative credits across all payment types per partner to determine when the deduction trigger is hit. A firm with 8 partners, each drawing monthly remuneration and annual interest, must monitor 8 running totals throughout the year.
Timing of Deduction vs. Payment
The deduction must occur at the time of credit to the partner’s account or at the time of payment, whichever is earlier. Many firms credit partner remuneration in bulk at year-end based on profit allocation. In such cases, TDS must be deducted at the time of that year-end credit entry, not when the partner actually withdraws funds.
Interest on Capital Complications
Interest on partners’ capital is allowed as a deduction to the firm only up to 12% per annum under Section 40(b). Section 194T requires TDS on the full interest credited, regardless of whether it exceeds the 40(b) limit. The TDS receivable for the partner and the TDS payable for the firm must be reconciled against two different reference points: the amount credited and the amount allowable as a deduction.
Section 194T Compliance Reference
| Parameter | Specification |
|---|---|
| TDS Rate | 10% (20% without PAN) |
| Threshold | ₹20,000 per year (aggregate) |
| Covered Payments | Salary, remuneration, commission, bonus, interest on capital |
| Deposit Deadline | 7th of following month (30 April for March) |
| TDS Return Form | Form 140 (replaces Form 26Q) |
| TDS Certificate | Form 131 (replaces Form 16A) |
| Payment Code | 1067 |
| Income Tax Act 2025 Mapping | Section 393(3), Table Serial No. 7 |
Consequences of Non-Compliance
The penalty structure for Section 194T non-compliance follows the standard TDS default framework, but the practical exposure for firms is higher than most other TDS sections because partner remuneration is typically a large recurring expense.
A firm paying ₹50 lakh annually in partner remuneration across 5 partners without deducting TDS faces: ₹5 lakh in TDS liability payable from the firm’s own funds under Section 201(1), ₹15 lakh in expenditure disallowance under Section 40(a)(ia) at 30% of the payment, and interest at 1% per month under Section 201(1A) from the date the TDS was deductible.
Firms using TDS reconciliation software can configure partner current account monitoring to flag when the ₹20,000 aggregate threshold is approaching, ensuring deductions are triggered on the correct payment rather than discovered during the quarterly return filing cycle. For firms with operations across multiple states and partners in different entities, reconciliation software India-wide deployments consolidate all partner payment tracking into a single compliance workspace.
Section 194T rates, filing deadlines, and Form 140 specifications are published on the Income Tax India e-filing portal.