The Statutory Brief

IT Act 1961 → 2025 / Section 40

Business income

Section 40 → Section 35

Amounts not deductible: TDS defaults (40(a)) and partner remuneration/interest (40(b))

Section 40 of the old Income-tax Act, 1961 · new section 35 under the Income-tax Act, 2025

New reference Section 35

Income-tax Act, 1961Section 40

  • 40(a)(i): 100% disallowance for non-deduction on payments to non-residents
  • 40(a)(ia): 30% disallowance for resident payments
  • 40(b): partner interest up to 12%; remuneration up to ₹3 lakh or 90% of first ₹6 lakh book profit, 60% thereafter

Applies to FY 2025-26 (AY 2026-27) and earlier years.

Income-tax Act, 2025Section 35

  • Same, now section 35
  • 30% disallowance for TDS default on resident payments; allowed in the year of payment
  • Partner interest up to 12% p.a.
  • Partner remuneration: ₹3 lakh or 90% of first ₹6 lakh of book profit, 60% of the balance

Applies from tax year 2026-27 (from 1 April 2026).

What changed

Renumbered; limits unchanged.

Practice notes

  • TDS on partner payments: section 393(3), Table Sl. No. 7 (old 194T).

These are summaries, not the statutory text. Read the bare Act for both sections on the Income Tax Department's official site, which also has a side-by-side comparison utility.

Frequently asked

What is the partner remuneration limit under the new Income Tax Act 2025?

Section 35: on the first ₹6 lakh of book profit (or loss), ₹3 lakh or 90% whichever is higher; 60% of the balance; interest up to 12%.

What is the disallowance for not deducting TDS under the new Income Tax Act 2025?

30% of the expense for resident payments (old 40(a)(ia)); 100% for non-resident payments, allowed when the tax is later paid.

What is section 40 called in the new Income-tax Act, 2025?

Section 40 of the Income-tax Act, 1961 corresponds to Section 35 of the Income-tax Act, 2025, which applies from 1 April 2026 (tax year 2026-27).

What changed in section 40 under the new Income Tax Act?

Renumbered; limits unchanged.

Is section 40 still applicable for FY 2025-26?

Yes. Income of FY 2025-26 (AY 2026-27) and earlier years is governed by section 40 of the 1961 Act. Section 35 of the 2025 Act applies from tax year 2026-27.

Related sections

194T→393TDS of 10% by firms on salary, remuneration, commission, bonus or interest to partners37(1)→34General deduction for business expenditure; disallowance of illegal expenses and CSR43B→37Deductions allowed only on actual payment (taxes, PF, bonus, leave encashment, MSME dues)