No. Explanation 2 to s.15 says in terms that a partner's salary from his firm is not salary for the purposes of that head, so s.192 cannot apply — there is no employer and no employee. It is business income of the partner under s.28(v). Until 31 March 2025 there was no TDS obligation on it at all. From 1 April 2025 s.194T requires the firm to deduct 10 per cent on salary, remuneration, commission, bonus and interest paid to a partner, above Rs 20,000 in the financial year.
The statutory answer to a s.192 demand is one sentence long. Explanation 2 to s.15 provides: "Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as 'salary' for the purposes of this section." It was inserted by the Finance Act 1992 with effect from 1 April 1993. Section 192 obliges a person responsible for paying "any income chargeable under the head 'Salaries'" to deduct at the average rate. If the payment is not salary for the purposes of s.15, it is not income chargeable under that head, and s.192 has nothing to fasten on. The underlying reason is the one the courts have always given: a firm is not a legal person distinct from its partners in the way an employer is distinct from an employee, and what a partner draws is a mode of dividing the firm's profit rather than a wage.
Where it is charged instead is s.28(v), which brings to tax "any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm". Section 2(24)(ve) puts the same thing into the definition of income, as any sum chargeable under clause (v) of s.28. So the partner returns it as profits and gains of business or profession, not as salary, and the consequences follow from that: no standard deduction, no Form 16, and the amount is chargeable only to the extent the firm's deduction survives s.40(b).
That last point does real work. Section 28(v) has a proviso whose effect is that where the firm's deduction for the payment is disallowed under s.40(b), the corresponding amount is not chargeable in the partner's hands. Remuneration to a non-working partner is not deductible at all, and so is not the partner's income either. The corpus's own page on s.40(b) sets out the ceilings and the deed conditions.
Until recently there was no deduction obligation of any kind on these payments. Section 192 was out for the reason above; s.194J was never in play, because a partner drawing his share is not rendering professional services to a separate person under a contract for services. That is why a firm could credit remuneration to a partner's capital account without deducting anything.
That changed with s.194T, inserted after s.194S by the Finance (No. 2) Act, 2024 with effect from 1 April 2025. It provides that "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 shall, deduct income-tax thereon at the rate of ten per cent." Sub-section (2) provides that no deduction is to be made where the sum or the aggregate of such sums credited or paid, or likely to be credited or paid, to the partner does not exceed twenty thousand rupees during the financial year.
Three features of that wording decide most questions in practice. First, the trigger is credit or payment, whichever is earlier, and credit expressly includes credit to the capital account — so a year-end journal entry crediting remuneration attracts the deduction even though no money moves. Second, the words are "in the nature of" salary, remuneration, commission, bonus or interest. A partner's drawings against his capital are not, of themselves, any of those things; the obligation arises when the firm determines the liability and debits the relevant head of account. On the view taken in the itatonline article I have relied on for this, no tax is required to be deducted from drawings unless the payment is in the nature of the items the section lists. Third, the Rs 20,000 threshold is an annual aggregate per partner and takes in what is likely to be credited or paid, so a firm that expects to cross it should deduct from the first credit rather than waiting.
Where the remuneration is to a non-working partner and will be disallowed under s.40(b), the same article takes the view that there is nothing chargeable in the partner's hands and so nothing to deduct on. That is a reasoned view, not a decided one, and a firm taking it should expect to have to argue it.
So the answer to the officer at the counter is: the demand under s.192 fails on Explanation 2 to s.15 for every year; for financial year 2025-26 onwards, ask him instead whether s.194T was complied with, because that is the provision that now applies.
Two things turn on this. A s.192 or s.201 demand on partner remuneration is answerable out of the statute alone and should not be settled. And s.194T is new — the corpus carried nothing on it — so firms that have never deducted anything on partner drawings now have a live compliance obligation from 1 April 2025, with interest under s.201(1A) and a s.40(a)(ia)-type exposure if it is missed. The credit-to-capital-account trigger means the year-end entry, not the cash withdrawal, is the event to watch.
The officer has valued my company flat under Rule 3 and added the difference to my salary. I pay the licence fee my employer charges everybody. Must he first prove I actually got a concession in rent?
The TDS officer says I under-deducted under s.192. If my estimate was made honestly, does that answer the demand, the interest and the penalty?
My employees exercised stock options but the shares are locked in and non-transferable. Was I supposed to deduct tax on the market value less what they paid?
My employer pays part of the premium on a superannuation policy, but I get nothing unless I stay until retirement. Is that contribution taxable as a perquisite in my hands now?
As an employer, must I collect bills and tickets from employees before treating leave travel concession or conveyance allowance as exempt while deducting tax under section 192?
I draw a salary from my firm, which grows and manufactures tea. Only 40 per cent of the firm's income is taxable as business income - is my whole salary taxable, or only 40 per cent of it?
Our restaurant and banquet bills carry a tip that the customer adds on the card. The money lands in our bank account and we hand it to the staff with their wages. The department says that is salary we should have deducted on. Is it?
A Board circular supports my reading of the section. Can I hold the Tribunal or the High Court to it, and can a circular settle what a provision means?
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