Section 194T: What It Means for Partnership Firms and Why You Should Pay Attention

By Bloomtree Advisors – Growing Value, Guiding Growth

Effective April 1, 2025, a quiet but powerful shift takes place in India’s tax ecosystem—one that every partnership firm and LLP must understand: the introduction of Section 194T under the Income Tax Act.

At Bloomtree Advisors, we simplify complex financial changes so your leadership team can stay focused on growth.

What Is Section 194T?

Section 194T requires partnership firms and LLPs to deduct TDS (Tax Deducted at Source) when making certain payments to their partners. This provision brings partner-level transactions into the TDS compliance framework for the first time.

Payments Covered Under Section 194T

TDS must be deducted on the following if the total exceeds Rs. 20,000 in a financial year:

• Remuneration

• Commission

• Bonus

• Interest (on capital or loans)

TDS applies at 10%, to be deducted at the time of credit or payment, whichever is earlier.

Exclusions – Payments Not Covered

These transactions are not subject to TDS under Section 194T:

• Repayment of capital contributed by the partner

• Reimbursement of business-related expenses incurred by the partner

Applicability Explained with an Example

Let’s say your firm makes the following payments to a partner:

• Interest on capital: Rs. 15,000

• Remuneration: Rs. 10,000

• Commission: Rs. 5,000

Total payment = Rs. 30,000

This exceeds the Rs. 20,000 threshold. Therefore, TDS @10% = Rs. 3,000 must be deducted.

Compliance Checklist for Section 194T

To comply with Section 194T, firms must:

1. Register for TAN (Tax Deduction and Collection Account Number)

2. Deduct and deposit TDS on time with the government

3. File quarterly TDS returns via Form 26Q

4. Issue Form 16A to each partner for their personal tax credit

Why This Matters to Your Firm

This change goes beyond paperwork. It impacts:

• Partner Expectations – Net payments may reduce, requiring transparent communication

• Cash Flow Strategy – You’ll need to plan for regular TDS deposits

• System Accuracy – Your accounting systems must classify payments and trigger TDS correctly

Bloomtree’s Take

Section 194T brings more rigor into partnership finances. While it adds a layer of compliance, it also encourages stronger internal controls and more predictable cash flows.

Need Help Navigating This?

We’re here for you. At Bloomtree, we integrate tax compliance into your operating rhythm so you can stay ahead—not just compliant.

Contact us:
anantha@bloomtreeadvisors.com | prathik@bloomtreeadvisors.com
+91-8867474079 | +91-9035309350

Bloomtree Advisors
Growing Value. Guiding Growth.