When will Section 194T become effective?

Section 194T will be effective from April 1st, 2025, applying to Assessment Year 2025-26 and onwards.

What is the TDS rate for 194T?

Section 194T applies to co-operative societies paying cash withdrawals. The TDS rate is 2% on cash withdrawals above ₹3 crore in a financial year.

When should 194T TDS be deposited?

TDS under 194T must be deposited by the 7th of the following month, except for March, which is payable by 30 April.

What is the TDS limit for 194C partnership firm?

Under 194C, TDS applies if a single contract exceeds ₹30,000 or aggregate payments exceed ₹1,00,000 in a year.

TDS rates vary by section; common ones include 1% for certain transactions (like 194C for individuals/HUF) and 10% for professional services under 194J.

How to calculate tax in partnership firm?

Compute book profit, deduct allowable remuneration and interest to partners, and apply the 30% tax rate plus cess/surcharge to the resulting taxable income.

What is the TDS rate for 194J partnership firm?

Under 194J, TDS is 10% for professional/technical services; 2% applies specifically to technical services excluding professional services.

How to file TDS return for section 194T?

File the TDS return quarterly using Form 26Q on the TRACES or NSDL portal, reporting all deductions under section 194T.

What is the tax rate for partnership firms?

A partnership firm is taxed at a flat 30%, plus 12% surcharge (if applicable) and 4% health & education cess.

How is partner remuneration calculated?

Partner remuneration is allowed as per the partnership deed and section 40(b): ₹1,50,000 or 90% of book profit (whichever is higher) for the first ₹3 lakh, and 60% of book profit thereafter.

What tax rate is applicable to the partnership?

Partnership firms are charged a flat 30% income tax, plus applicable surcharge (if income > ₹1 crore) and 4% cess.

What is the tax rate for partnership firms?

A partnership firm is taxed at a flat 30%, plus 12% surcharge (if applicable) and 4% health & education cess.

How is partner remuneration calculated?

Partner remuneration is allowed as per the partnership deed and section 40(b): ₹1,50,000 or 90% of book profit (whichever is higher) for the first ₹3 lakh, and 60% of book profit thereafter.

How to calculate tax in partnership firm?

Compute book profit, deduct allowable remuneration and interest to partners, and apply the 30% tax rate plus cess/surcharge to the resulting taxable income.

What is the TDS rate for 194J partnership firm?

Under 194J, TDS is 10% for professional/technical services; 2% applies specifically to technical services excluding professional services.

What tax rate is applicable to the partnership?

Partnership firms are charged a flat 30% income tax, plus applicable surcharge (if income > ₹1 crore) and 4% cess.

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Budget 2024: 10% TDS On Firm To Partner Payments Under New Section 194T

Pragya Pathak

Author

Updated: 04-12-2025 at 3:30 PM

The Government budget 2024 has brought several changes, and one of those major changes is for partnership firms through the proposal to introduce new Tax Deducted at Source (TDS) provisions in Section 194T of the Income Tax Act, 1961. This is aimed at bringing within the ambit of TDS payments made to partners, such as salary, remuneration, commission, bonus, and interest, as mentioned in the Union Budget 2024-25 PDF. Currently, there is no provision for TDS on such payments.

Section 194T will be implemented and effective from the 1st of April, 2025, following which partnership firms will be required to re-evaluate their financial planning for the coming year. This new change will not only impact the way partners’ incomes are accounted for but will also affect the current workings of the firms.

Read the article to learn more about the change proposed in Section 194T through the Union Budget 2024-25.

Understanding Section 194T Under Union Budget 2024-25

Proposed Section 194T makes it obligatory for partnership firms to deduct Tax Deducted at Source at the rate of 10% on payments aggregating more than Rs. 20,000 in any financial year.

This includes credits to the partner's capital account or any other account. The provision will be effective from April 1st, 2025, and shall apply for Assessment Year 2025-26 and onwards.

For Tax Deducted at Source purposes, all payments made to a partner, including salary, remuneration, commission, bonus, or interest, will be aggregated and treated as one combined amount.

Therefore, even if individual payments are below Rs. 20,000, they will still be liable for the deduction of Tax Deducted at Source if the entire aggregate sum exceeds this threshold.

Proposed Section 194T Reads As Under Union Budget 2024-25

(1) Any person being a firm responsible for paying any sum like 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 any capital account) or at the time of payment thereof whichever is earlier deduct income-tax thereon @10%.

(2) No deduction shall be made under subsection (1), where such sum or aggregate of such sums does not exceed twenty thousand rupees credited or paid by the firm to a partner during the financial year.”

Implications For Partnership Firms

The introduction of firm payment Tax Deducted at Source under section 194T requires that partnership firms adjust and ensure compliance from the next financial year. Partnership firms must consider Section 194T implications and factor the Tax Deducted at Source deduction into partners’ payments, like salary, interest, bonus, and commissions.

This new change, introduced with the Budget 2024, will require the partnership firms to update and revise their existing payment structures to avoid non-compliance with the law. Also, partnership firms must train and educate the partners about the new changes, as this will directly affect their remuneration.

All in all, Section 194T has been introduced as it is much more organised and transparent, which will help in improving the current financial transactions between partnership firms and partners, and force the firms to adopt a better approach to tax management and reporting.

Also Read: Budget 2024: Big Announcement For Importers And Exporters, Custom Duty Rates Revised

Changes To Remuneration Limits

Alongside the new Tax Deducted at Source provision, the government has also introduced changes to the remuneration limit for working partners, which shall come into effect from the assessment year 2025-2026 onwards. The proposed revised limits are as follows:

a) On the first Rs. 600000 of book profit or in case of loss: Rs. 3,00,000 or at a rate of 90% of book profit, whichever is higher.

b) On balance of book profit: @60%.

Compliance And Adaptation

Although budget proposals did not directly give any respite to partnership firms, an increase in allowable deductions for remuneration paid to work partners has partly met taxpayers’ expectations. The new Tax Deducted at Source regime will require partnership firms to adapt and ensure compliance from the next financial year.

Ensuring Smooth Implementation

To ensure smooth implementation, partnership firms should keep in mind the following points mentioned below for clarity:

Review and Update Agreements: Partnership firms are required to revise and amend their partnership agreements to incorporate the provisions of Section 194T. Clauses related to remuneration, interests, or commission paid to partners should clearly mention the need for TDS deduction at the mentioned rate in the Union Budget 2024-25 PDF. Updating the agreement would keep things clean, transparent, and accountable for all parties involved.
Maintain Accurate Records: Partnership firms must ensure that all payments, such as salary, bonus, commission, or interest, made to the partners are properly recorded and aggregated to determine TDS applicability. Maintenance of organised books of accounts would help the firm in identifying when the Rs. 20,000 limit is crossed, which will lead to timely deduction and deposit of TDS (Tax Deducted at Source).
Educate Partners: Partners should be educated about the new Tax Deducted at Source provisions and their consequences on their earnings. Training and informing partners on how deductions will show itself in their capital accounts, how much tax will be deducted, and how it will affect their liability will help the firm in avoiding any misunderstandings and confusion.
Seek Professional Advice: Tax laws and updates in them are always challenging to understand at first. Therefore, tax professionals should be engaged to properly understand the new provisions under professional guidance. An expert will help the partnership firms and the partners in correctly interpreting the new provisions, ensure timely deductions and deposits of Tax Deducted at Source, and also assist them in revising their working structure as per the new changes. Expert guidance will also help the firm in avoiding legal consequences, like penalties, and transition smoothly to the new changes.

Conclusion

To conclude, the inclusion of Section 194T in the government budget 2024 has seen a significant change in the tax environment for partnership firms. The government intends to improve tax compliance and make tax processing streamlined by instructing partners to pay 10% Tax Deducted at Source on those amounts exceeding Rs. 20,000.

With the new provision coming into effect soon, partnership firms need to adjust to these changes through various steps, like revising existing partnership agreements, improving accounting accuracy, and training the partners on new regulatory changes, in order not to fall into any legal or financial trouble. Complying and acting in line with the new changes are the key components of long-term financial stability for partnership firms.

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