What is Section 194T?
Section 194T mandates TDS at 10% on the following payments made by a firm (including LLPs) to its partners:
- Salary or remuneration
- Interest on capital
- Commission
- Bonus
Exemption: No TDS is required where the aggregate payment to a partner during the financial year does not exceed ₹20,000.
Compliance Timeline
Particulars and their respective due dates:
| Particulars | Due Date |
|---|---|
| Monthly TDS Deposit | 7th of next month |
| March TDS Deposit | 30th April |
| TDS Return (Form 26Q) | Quarterly, starting FY 2025–26 |
| TDS Certificate (Form 16A) | After filing Form 26Q |
Applicability
Section 194T applies to:
- Registered partnership firms and LLPs
- Payments credited or paid to partners (even credit entries trigger TDS)
Key Audit and Accounting Considerations
- Remuneration must be per partnership deed, effective from the date of change.
- Interest allowed up to 12% simple interest on capital as per Income Tax Act.
- Deed must clearly specify the amount/share of remuneration for each partner.
- Form 3CD reporting in Clause 21(c) and Clause 34 becomes crucial.
Challenges and Practical Issues
- 1. Accounting Finalization Pressure
Firms must finalize accounts before April 30 to avoid interest/penalty on March TDS.
- 2. Cash Flow Stress
TDS at 10% might result in excess tax deduction, especially for low-income partners. No relief via Form 15G/15H or Form 13 is available under this section.
- 3. Coordination with Partners
Proper bifurcation of capital withdrawals vs. income payments is essential. Misclassification can lead to non-compliance or delayed filing of returns.
Legal Backing: Section 184
To claim deduction of partner’s salary/interest:
- Partnership deed must be in writing.
- Clear profit-sharing and remuneration clauses must be mentioned.
- Non-compliance may lead to disallowance under Section 144.
Conclusion
Section 194T represents a significant move toward expanding the tax base and enforcing real-time compliance. Firms will now need robust accounting systems, enhanced coordination with partners, and proactive audit checks to manage this added responsibility.
