Section 194T: The Provision Your Firm Is Most Likely to Miss

Section 194T is the provision most likely to be missed this year, for a reason that has nothing to do with its difficulty. It is not difficult. It is simply new, and every habit a firm has built around partner payments predates it.

From 1 April 2025 — so from FY 2025-26 — a partnership firm or LLP must deduct tax at source on payments to its own partners.

What the section actually covers

Tax at 10% on remuneration, interest, commission, bonus or salary paid to a partner, once the aggregate to that partner exceeds ₹20,000 in the financial year.

Three things about that sentence tend to get read wrong.

The threshold is on the aggregate, not the payment. It is not ₹20,000 per transaction. It is ₹20,000 for the year, per partner, across all of those heads combined. A firm paying a partner ₹8,000 a month crosses it in March of the third month and has been required to deduct since then.

Interest on capital counts. This is the one that catches firms with modest remuneration and substantial partner capital. Interest credited to a partner's capital account is inside the section. It does not have to be withdrawn, and crediting is enough.

Drawings are not the test. The section follows what the firm has charged as an expense or credited to the partner, not what the partner physically took out. A partner who draws nothing all year and has ₹4,00,000 of remuneration credited to their account is squarely inside it.

Why section 192 was never the answer

Some firms have historically treated partner remuneration as salary and deducted under section 192.

That was always wrong, and it matters more now because the correct section exists.

A partner is not an employee of the firm. Section 192 governs employer-to-employee payments, and the partner relationship is not one.

There is no employment. The partner shares in the firm rather than being paid by it, which is exactly why a separate section had to be introduced to bring these payments into withholding at all. If your firm's own returns have been showing partner remuneration under 192, that is a correction to make in the same breath as adopting 194T.

Where firms will actually get caught

The failure mode here is not a wrong computation. It is a payment that was never looked at.

Partner remuneration is usually posted through a journal at year end, often as a single entry sized to whatever section 40(b) allows. Interest on capital is frequently computed in a spreadsheet and posted once. Neither of these looks like a payment when you are scanning for TDS, because neither passes through the heads a TDS review normally walks.

So the entry gets made, the deduction does not, and the disallowance under section 40(a)(ia) arrives on a number the firm computed itself.

There is a second-order effect worth naming. The 40(b) limit and the 194T obligation now interact. The remuneration figure a firm settles on for 40(b) purposes is the same figure that triggers withholding, so the year-end entry that was previously a single tax decision is now two.

How Audcrix runs it

Audcrix reads the ledgers and vouchers from Tally and treats partner payments as their own class rather than as ordinary expenses.

• Partner remuneration and interest on capital are aggregated per partner across the year and tested against the ₹20,000 threshold, so a series of small monthly credits is caught the same way a single large one is.
• The section is year-gated. For FY 2024-25 and earlier it reads as not applicable, with the reason stated, rather than showing a nil position that could be mistaken for a clean result. The section did not exist; the file says so.
• Section 40(b) remuneration and interest limits are computed alongside it, because they are two questions about the same entry and answering one without the other leaves the file half-finished.
• The deduction and deposit status is verified in TDS Intelligence, deductee-wise, so the flag is a pointer into evidence rather than an assertion on its own.
• Every figure opens onto the entries behind it — which partner, which head, which vouchers make up the aggregate.

The point of running it this way is that a year-end journal is not exempt from a TDS review just because it never looked like a payment. It is the entry most likely to be missed, so it is the entry that has to be tested by construction rather than by remembering.

Audcrix is audit and compliance intelligence for Indian CA firms. It reads a client's books once, straight from Tally, and runs the statutory tests across the whole population. See how it works.