TDS on partner remuneration / interest paid by firm

From FY 2025-26 onwards, a partnership firm (including any LLP) must deduct TDS at 10% on payments to its partner — whether salary, remuneration, commission, bonus, or interest — once the aggregate paid to one partner in the FY exceeds ₹20,000.

Key points

• The deductor is the firm or LLP, and the deductee is the partner.
• The deduction is triggered by any sum paid or credited to a partner in the nature of salary, remuneration, commission, bonus, or interest — capital returns and current-account drawings that do not fall in these categories are outside the scope.
• The rate is 10%, raised to 20% where the deductee has not furnished PAN.
• The threshold is aggregate of ₹20,000 per partner per FY — once crossed, TDS applies on the ENTIRE amount including the first ₹20,000.
• The deduction is made at the earlier of credit to the partner's account (including the capital or current account) or actual payment, and is reported on the standard Form 26Q.
• Crucially, §194T pairs with §40(b) — even if the firm has deducted §194T correctly, the §40(b) deductibility ceiling still governs the firm's own books: the firm can DEDUCT remuneration only up to the §40(b) cap.

Reference: §194T, ITA 1961 — under ITA 2025 (FY 26-27 onwards), this is §393(3) Sl.7