Since 1 April 2025, a partnership firm or LLP paying its own partners has to deduct tax at source on those payments. Most firms have never needed a TAN. A good number are now in default and do not know it, because FY 2025-26 is the first year Section 194T actually bites and the returns are being filed right now.
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TDS payable, interest under Section 201(1A), late filing fee under Section 234E at ₹200 per day and any penalty are paid to the government at actuals, over and above our professional fee. A TAN application carries a nominal statutory fee. Not holding a TAN when required is itself a default under Section 272BB carrying a ₹10,000 penalty, separate from everything else.
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We check whether the aggregate of salary, remuneration, commission, bonus and interest to each partner crossed ₹20,000 for the year — including amounts merely credited to the capital account.
Most firms have never needed a TAN. It has to be in place before the first deduction, because not having one is a standalone default under Section 272BB.
Remuneration is deductible only to a working partner and only where the deed authorises it and quantifies it or gives a method to quantify it. We review the clause before the computation, because this is where firms lose the deduction entirely.
Quarterly TDS returns in Form 26Q including the 194T entries, and Form 16A issued to each partner.
The partner's Form 26AS shows the full credited amount while only part may be deductible for the firm. We plan that reconciliation into the entry rather than fixing it afterwards.
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Introduced by the Finance (No. 2) Act, 2024 and effective 1 April 2025, every firm and LLP must deduct TDS at 10 per cent on salary, remuneration, commission, bonus or interest paid or credited to a partner, once the aggregate to that partner exceeds ₹20,000 in a financial year. Under the Income-tax Act, 2025 it maps to Section 393(3), Table Sl. No. 7 from 1 April 2026 — same obligation, new numbering.
Deduction is at the earlier of credit or payment, and crediting the partner's capital account is credit. A year-end book entry for remuneration triggers TDS even though no money moved.
Interest of ₹15,000 plus commission of ₹10,000 to the same partner crosses it. And once crossed, TDS applies to the whole amount, not just the excess.
You deduct on what is credited. Section 40(b) may disallow part of that in the firm's computation. So the partner's Form 26AS shows the full amount while only part is deductible for the firm. That reconciliation has to be planned into the entry, not fixed afterwards.
Not deducting makes you an assessee-in-default under Section 201(1), with interest under Section 201(1A) on late deposit, ₹10,000 under Section 272BB for having no TAN, and ₹200 per day under Section 234E for a late TDS return. The expensive one is the 30 per cent disallowance of the expenditure under Section 40(a)(ia) — thirty per cent of partner remuneration added back to taxable income is usually a far bigger number than the TDS itself.
Revised from AY 2025-26: on the first ₹6,00,000 of book profit or in case of loss, ₹3,00,000 or 90 per cent of book profit whichever is higher; 60 per cent on the balance above ₹6,00,000. Interest on partner capital is capped at 12 per cent per annum simple. Two absolute conditions: remuneration is deductible only to a working partner, and only where authorised by the partnership deed. A deed that does not authorise remuneration, or does not quantify it or give a method to quantify it, results in the whole amount being disallowed. That is the single most common disallowance in firm assessments, and it is a drafting problem, not a tax problem. Remuneration for any period before the clause was introduced is also disallowed.
Under Section 2(23), all of this applies to LLPs too. Traditional partnership firms remain eligible for presumptive taxation. LLPs do not, and never did.
The return you are filing now, for FY 2025-26, is under the Income-tax Act, 1961. Income from 1 April 2026 falls under the Income-tax Act, 2025, where Sections 44AD, 44ADA and 44AE merge into Section 58 and Section 44AB becomes Section 63.
Establish the position rather than wait for a notice — the exposure compounds and the disallowance lands in an assessment you did not plan for. We check whether ₹20,000 was crossed per partner for FY 2025-26, obtain a TAN if there is none, deposit the tax with interest under Section 201(1A), file the corrective TDS returns, issue Form 16A, and quantify the Section 40(a)(ia) disallowance so it is in your computation rather than discovered in scrutiny. Paying late is materially cheaper than being assessed.
