Any firm paying to a partner any sum in the nature of:
Salary
Remuneration
Commission
Bonus
Interest
is required to deduct tax at source.
## Threshold
Sum or aggregate of such sums exceeds ₹20,000 during the F.Y.
## Rate of TDS
10% of such sum (no surcharge / cess for resident partners).
## Timing of Deduction
At the earlier of:
1. Credit to the partner's account (including the capital account), OR
2. Payment to the partner.
> Important: Credit to the capital account triggers TDS — this is a unique feature, since normally TDS is on credit to a regular ledger account.
## Who is Liable?
Deductor: The firm (partnership firm or LLP).
Deductee: Partner of such firm.
Worked example
### Example 1
Example: ABC LLP credits ₹3,00,000 as interest on capital and ₹6,00,000 as remuneration to partner Mr. P during FY 2025-26.
Aggregate sum to partner = ₹9,00,000 > ₹20,000 ✓
TDS u/s 194T = 10% × 9,00,000 = ₹90,000
TDS to be deducted when credited to capital account or paid, whichever is earlier.
### Example 2
Example: XY & Co. firm pays partner Y interest of ₹15,000 and remuneration of ₹3,000 in FY 2025-26.
Aggregate = ₹18,000 ≤ ₹20,000 → No TDS u/s 194T.
⚠️ Common exam mistakes
Excluding credits to the partner's capital account from the scope of TDS — these are specifically included.
Treating ₹20,000 as 'per category' threshold — it is on aggregate of ALL covered payments to the partner.
Forgetting that interest paid to partners is also covered (unlike normal section 194A which excludes firm-to-partner interest).
Bare-Act text Section 194T · Income-tax Act, 1961 · click to expand
Section 194T: Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner (including the capital account) or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the rate of ten per cent, if such sum or the aggregate of such sums exceeds twenty thousand rupees during the financial year.