Importance of 30th April for TDS on payment to Partners
                     Importance of 30th April for TDS on payment to Partners
Summary: Section 194T of the Income-tax Act, 1961, introduced by the Finance (No. 2) Act, 2024 
and applicable from FY 2025–26, brings payments made by partnership firms and LLPs to 
partners under the TDS regime. It covers salary, remuneration, commission, bonus, and 
interest paid to partners, with TDS applicable at 10% if aggregate payments exceed ₹20,000 
annually (20% without PAN under Section 206AA of Income-tax Act). Deduction must occur 
at the earlier of credit or payment. A critical compliance deadline is 30 April for March 
deductions, allowing firms to finalize year-end provisions. Failure to deduct or deposit TDS 
attracts interest at 1.5% per month and triggers disallowance of 30% of expenses under 
Section 40(a)(ia) of Income-tax Act. Timely calculation and payment are essential to avoid 
financial and tax consequences. Arjuna (Fictional Character): Krishna, there is a specific 
section from the 1961 Act that is currently a hot topic for partnership firms—Section 194T 
before 30th April. Can you explain the applicability and rules of this section for partners? 
Krishna (Fictional Character): Arjuna, Section 194T was introduced by the Finance (No. 2) 
Act, 2024, and was applicable from FY 2025-26 to bring payments made by partnership 
firms to their partners under the TDS ambit. Let us first understand the applicability.
1. Applicability and Nature of Payments The section applies to all partnership firms (including 
Limited Liability Partnerships – LLPs). Tax must be deducted on any sum paid or credited to a 
partner in the nature of: Salary or Remuneration, Bonus or Commission, Interest on capital 
or loans provided by the partner.
2. Threshold Limit and Rate TDS is mandatory only if the aggregate amount of such 
payments to a partner exceeds ₹20,000 in a financial year. The standard TDS rate is 10%. If 
the partner does not provide a PAN, the deduction rate jumps to 20% under Section 206AA. 
3. Timing of Deduction: TDS must be deducted at the earlier of the time of credit of such 
sum to the account of the partner (including the partner’s capital account) or the time of 
actual payment in cash, cheque, or any other mode. Arjuna (Fictional Character): Krishna, 
why is it being said that firms should do their calculations right now, and what are the 
specific due dates and penalties? Krishna (Fictional Character): Arjuna, here is the essential 
guide for year-end compliance under Section 194T:
1. The March Deadline: April 30th 1. For tax deducted during the month of March, the due 
date for payment to the credit of the Central Government is April 30th. This extra time is 
provided to allow firms to finalize partner salaries, interest calculations, and commissions 
before closing the books.
2. Why Calculate Now? Firms should do their TDS calculations because many firms credit 
partner salaries, interest, and commissions at year-end, creating “provisions.” Since the FY 
2025-26 has ended the firms can now calculate the allowable salary and interest payable to 
their partners based on which they can do their TDS deductions.
If TDS is not calculated and paid now, and additional salary is provided at the time of return 
filing, it may trigger interest on late payment. 
3. Interest for Late Payment: If taxpayers deduct tax but fail to pay it to the government, interest 
is charged at 1.5% per month from the date of deduction to the date of payment.
Arjuna (Fictional Character): Krishna, are there any other hidden consequences the firm might 
have to face due to non-compliance of this section? Krishna (Fictional Character): Arjuna 
under Section 40(a)(ia), failure to deduct or deposit TDS results in 30% of the expense 
(Salary, Interest, or Commission) being disallowed and added back to the firm’s taxable 
income. This creates a “double burden” where the firm pays extra income tax on an actual 
business expense, plus additional interest and penalties. Calculating these figures correctly 
before the April 30th deadline is essential to avoid additional interest burden. Arjuna 
(Fictional Character): Krishna, what partnership firms learn from this? Krishna (Fictional 
Character): Arjuna, the key takeaway for partnership firms is the importance of timely 
compliance. Firms need to ensure that they accurately track all payments made to partners 
throughout the year and apply TDS when required and pay the same before 30th April. By 
doing so, they avoid facing penalties, interest charges, and the risk of business expenses 
being disallowed.
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