By CA Surekha S Ahuja
As FY 2025–26 closes on 31 March 2026, partnership firms and LLPs crediting remuneration or interest to partners must ensure proper compliance with Section 194T.
Since the statutory framework has already been discussed earlier, the focus here is only on practical execution points—
TDS challan payment, balancing partner advance tax with TDS, key planning tips, and caution areas.
Procedure for Payment of TDS (Section 194T)
Where TDS is deducted on partner payments in March 2026, the tax must be deposited by 30 April 2026 using Challan ITNS 281.
Payment Steps
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Access the Income Tax e-payment portal and select Challan ITNS 281.
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Enter the following details carefully:
| Field | Entry |
|---|---|
| Nature of payment | TDS payable |
| Section code | 194T |
| Payment type | 200 – Regular TDS |
| Financial year | 2025–26 |
| Assessment year | 2026–27 |
| TAN | Firm’s TAN |
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Enter the TDS amount and complete payment through net banking.
After payment, the system generates a Challan Identification Number (CIN), which must be quoted in Form 26Q while filing the quarterly TDS return.
Balancing Partner Advance Tax with TDS
A practical issue arises because partners must discharge advance tax by 15 March, whereas many firms determine remuneration or interest only at year end.
This creates a timing mismatch.
| Timing of Credit | Impact on Partner |
|---|---|
| Before 15 March | TDS can be factored into advance tax |
| After 15 March | Partner may overpay advance tax |
| After year end | TDS usually results in refund |
Practical approach
Where remuneration is reasonably predictable, firms should share estimated partner income before 15 March so that partners can align their advance tax payments.
Even provisional estimates help avoid unnecessary refunds and cash flow strain.
Practical Tax Planning Tips
Balance remuneration and profit share
Remuneration and interest attract TDS, whereas profit share is exempt in the partner’s hands under Section 10(2A). A balanced structure helps manage TDS outflow.
Track the ₹20,000 threshold
TDS applies only when aggregate payments to a partner exceed ₹20,000 during the financial year. Monitoring this threshold avoids unnecessary deduction.
Review partner payments before finalisation
Determining remuneration earlier reduces the risk of TDS oversight and advance tax mismatch.
Ensure partnership deed flexibility
Profit-linked remuneration clauses provide greater flexibility than rigid fixed remuneration provisions.
Key Caution Points
Credit entries also trigger TDS
Even if remuneration is only credited to the partner’s capital account, TDS must still be deducted.
Disallowance under Section 40(b) does not remove TDS obligation
If remuneration exceeds the limits under Section 40(b), the excess may be disallowed in the firm’s computation, but TDS must still be deducted on the full amount credited.
Correct section selection in challan
Incorrect section reporting may delay TDS credit in the partner’s Form 26AS.
Maintain clear segregation in partner accounts
| Entry Type | TDS Applicability |
|---|---|
| Profit share | No |
| Remuneration | Yes |
| Interest | Yes |
| Capital withdrawal | No |
Proper classification reduces the risk of disputes.
Quick Compliance Reminder
Before closing FY 2025–26, firms should ensure:
• remuneration authorised in the partnership deed
• partner-wise payments reviewed against the ₹20,000 threshold
• TDS deducted correctly
• challan deposited by 30 April 2026
• TDS return filed in Form 26Q by 31 May 2026.
Final Professional Insight
Section 194T primarily introduces reporting and withholding discipline for partner remuneration and interest.
Smooth compliance depends on three simple actions:
• timely deposit of TDS through Challan ITNS 281
• coordination between firm TDS and partner advance tax planning
• clear segregation of partner account entries.
With these steps in place, firms can complete the year-end closing without refund mismatches, penalties, or compliance disputes.
