Amendments to Section 40 of Income-tax Act Clarify Limits on Partner Payments and Deductions

Section 40 of the Income-tax Act was amended to substitute the reference from "sections 30 to 39" to "sections 30 to 38" and to omit clause (c). A previously inserted clause (ii), relating to disallowance of certain payments by firms and associations to partners or members, was later omitted. This clause had detailed restrictions on payments of salary, bonus, commission, remuneration, and interest to partners or members, especially whole-time working partners, and prescribed limits based on book profits and prescribed interest rates. It also included specific explanations regarding partners or members acting in representative capacities and adjustments where reciprocal interest payments occurred. The amendments aimed to clarify and regulate the deductibility of such payments for tax purposes, ensuring compliance with partnership deeds and prescribed financial limits.

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