TDS on Partners’ Salary & Interest — New Rule 194T Starts April 2025
Starting April 1, 2025, all Partnership Firms and LLPs must comply with a major new tax provision Section 194T, introduced in Budget 2024. This section mandates TDS (Tax Deducted at Source) on certain payments made to partners, including salary, remuneration, commission, and interest bringing added responsibility and transparency to firm-level transactions.
What is Section 194T?
✅ Applicable to: All Partnership Firms & LLPs
✅ Effective From: 1st April 2025
✅ Tax Type: TDS on payments to partners
✅ Payments Covered Under 194T
– Salary
– Remuneration
– Commission
– Bonus
– Interest on capital or partner loans
✅ TDS Threshold: If total payments exceed ₹20,000 per partner per financial year
✅ TDS Rate: 10% on the entire eligible amount
What This Means for Firms & LLPs
Section 194T isn’t just a compliance checkbox it introduces a new way of handling internal financial flows in firms. Payments that were once internally settled or adjusted through capital accounts are now subject to external tax deduction and reporting. Firms must update their accounting systems, categorize payments carefully, and prepare partners for the change.