Section 194T

Section 194T — the law in short

What the courts have decided on section 194T, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — section 194T: from 1 April 2025 a firm must deduct 10 per cent on what it pays its own partners CBDT Circulars & InstructionsCuts both ways
  We credit partners' remuneration and interest to their capital accounts once a year when the accounts are finalised. Do we now have to deduct TDS on that?
  Yes, from 1 April 2025. Section 194T, inserted by the Finance (No. 2) Act 2024, requires a firm paying any sum in the nature of salary, remuneration, commission, bonus or interest to a partner to deduct income-tax at 10 per cent at the time of credit to the partner's account — expressly INCLUDING his capital account — or at the time of payment, whichever is earlier. No deduction is required where the sum, or the aggregate of such sums credited or paid or likely to be credited or paid to that partner, does not exceed Rs 20,000 in the financial year.
• Statutory position — section 40(b)(v): the working-partner remuneration ceiling, raised from AY 2025-26 CBDT Circulars & InstructionsCuts both ways
  What is the maximum remuneration my firm can deduct for its working partners for the year I am filing now, and does the old professional / non-professional split still exist?
  For assessment year 2025-26 onwards the ceiling is Rs 3,00,000 or 90 per cent of the book profit, whichever is more, on the first Rs 6,00,000 of book profit or in case of a loss, and 60 per cent of the balance of the book profit. Those figures were substituted by the Finance (No. 2) Act 2024 (Act No. 15 of 2024) with effect from 1 April 2025. For assessment years 2010-11 to 2024-25 the same two-band table applied but with Rs 1,50,000 and Rs 3,00,000 in place of Rs 3,00,000 and Rs 6,00,000. The separate table for professional firms disappeared from AY 2010-11 and there is now one table for all firms.
• Statutory position — sections 10(2A) and 28(v): the share of profit is exempt, the remuneration and interest are not CBDT Circulars & InstructionsCuts both ways
  The AO says the whole of what I received from my firm is taxable. Which part of a partner's receipts from his firm is actually exempt, and how is the exempt share computed?
  Only the partner's share in the total income of the firm is exempt, and only where the firm is separately assessed as such — that is section 10(2A). Interest, salary, bonus, commission and remuneration due to or received by a partner from the firm are not covered by the exemption at all; they are charged in the partner's hands as business income under section 28(v). The proviso to section 28(v) then works the other way, reducing the partner's income to the extent the firm was denied the deduction under section 40(b).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.