CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194T — Payments to Partners by a Firm (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance (No.2) Act, 2024 (w.e.f. 1 April 2025); brand-new.
Finance Act, 2026: No amendment.
Mechanism: A firm/LLP paying a partner salary, remuneration, commission, bonus or interest deducts 10% where the aggregate exceeds ₹20,000 a year; overlays withholding on the section 40(b)/28(v) flow.
Litigation profile: None. Effective only from FY 2025-26, with no judicial authority — the candour rule applies.
A. SECTION COMMENTARY
Section 194T, inserted by the Finance (No.2) Act, 2024 with effect from 1 April 2025, requires a firm (including a limited liability partnership) paying to a partner any sum by way of salary, remuneration, commission, bonus or interest (in the partner's capacity as a partner) to deduct tax at ten per cent, where the aggregate exceeds ₹20,000 in a financial year. It closes a long-standing gap: payments by a firm to its partners — though deductible in the firm's hands within the limits of section 40(b) and taxable in the partners' hands under section 28(v) — had never been subject to any withholding.
The amounts within section 194T are precisely those that the firm claims as a deduction under section 40(b) (working-partner remuneration and interest on capital, within the prescribed ceilings) and that the partner offers under section 28(v) as business income. Section 194T overlays a withholding obligation on that established flow; it does not alter the section 40(b) ceilings or the section 28(v) charge. The drawing of capital or a share of profit (exempt under section 10(2A)) is not within section 194T, which is confined to the enumerated remuneration/interest streams.
A brand-new provision — candour
Section 194T applies only from the financial year 2025-26 and has, necessarily, no judicial authority. In candour, it is applied from its terms read with sections 40(b) and 28(v); compliance questions (timing of deduction where remuneration is quantified only at year-end on finalisation of accounts, and the treatment of book entries) are open and will be worked out in practice and, in time, in litigation.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194T.(1) 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.
(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year.
C. AUTHORITIES
Candour rule strictly observed: section 194T applies from FY 2025-26 and has no judicial authority. Only the statutory scheme (with sections 40(b)/28(v)) is offered.
Principle: Section 194T withholds on the partner-remuneration and interest streams that the firm deducts under section 40(b) and the partner offers under section 28(v); it does not touch the section 40(b) ceilings or the exemption of profit share under section 10(2A).
Use: Locates the new withholding within the firm-partner taxation scheme.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194T.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194T — Payments to Partners by a Firm (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance (No.2) Act, 2024 (w.e.f. 1 April 2025); brand-new.
Finance Act, 2026: No amendment.
Mechanism: A firm/LLP paying a partner salary, remuneration, commission, bonus or interest deducts 10% where the aggregate exceeds ₹20,000 a year; overlays withholding on the section 40(b)/28(v) flow.
Litigation profile: None. Effective only from FY 2025-26, with no judicial authority — the candour rule applies.
A. SECTION COMMENTARY
Section 194T, inserted by the Finance (No.2) Act, 2024 with effect from 1 April 2025, requires a firm (including a limited liability partnership) paying to a partner any sum by way of salary, remuneration, commission, bonus or interest (in the partner's capacity as a partner) to deduct tax at ten per cent, where the aggregate exceeds ₹20,000 in a financial year. It closes a long-standing gap: payments by a firm to its partners — though deductible in the firm's hands within the limits of section 40(b) and taxable in the partners' hands under section 28(v) — had never been subject to any withholding.
Interaction with sections 40(b) and 28(v)
The amounts within section 194T are precisely those that the firm claims as a deduction under section 40(b) (working-partner remuneration and interest on capital, within the prescribed ceilings) and that the partner offers under section 28(v) as business income. Section 194T overlays a withholding obligation on that established flow; it does not alter the section 40(b) ceilings or the section 28(v) charge. The drawing of capital or a share of profit (exempt under section 10(2A)) is not within section 194T, which is confined to the enumerated remuneration/interest streams.
A brand-new provision — candour
Section 194T applies only from the financial year 2025-26 and has, necessarily, no judicial authority. In candour, it is applied from its terms read with sections 40(b) and 28(v); compliance questions (timing of deduction where remuneration is quantified only at year-end on finalisation of accounts, and the treatment of book entries) are open and will be worked out in practice and, in time, in litigation.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194T.(1) 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.
(2) No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or paid or likely to be credited or paid to the partner of the firm does not exceed twenty thousand rupees during the financial year.
C. AUTHORITIES
Candour rule strictly observed: section 194T applies from FY 2025-26 and has no judicial authority. Only the statutory scheme (with sections 40(b)/28(v)) is offered.
No direct authority — statutory backdrop
Interaction with sections 40(b) and 28(v)
Principle: Section 194T withholds on the partner-remuneration and interest streams that the firm deducts under section 40(b) and the partner offers under section 28(v); it does not touch the section 40(b) ceilings or the exemption of profit share under section 10(2A).
Use: Locates the new withholding within the firm-partner taxation scheme.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194T.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.