Amid growing confusion among taxpayers and professionals, the applicability of two key provisions introduced through the Finance Act, 2024 — the amended Section 40(b) and the newly inserted Section 194T — has now been clarified.
Section 40(b) Applicable from FY 2024–25 (AY 2025–26)
The amended Section 40(b), which pertains to the deductibility of remuneration and interest paid by a partnership firm to its partners, has been made effective from the assessment year 2025–26, corresponding to the financial year 2024–25.
This implies that disallowances under the revised Section 40(b) will come into effect from the current financial year itself. Firms must accordingly reassess their profit-sharing and remuneration agreements with partners to ensure compliance with the revised thresholds and conditions introduced through the amendment.
Professionals have been advised to revisit their partnership deeds and accounting practices to mitigate the risk of disallowances during assessment.
Section 194T to Take Effect from FY 2025–26 (AY 2026–27)
In contrast, Section 194T — a new provision introducing Tax Deducted at Source (TDS) obligations on payments such as salary, interest, or similar payments made by firms to partners — is slated to take effect from April 1, 2025.
This means that TDS under Section 194T will be applicable beginning financial year 2025–26, and will affect returns and compliance for the assessment year 2026–27.
As the provision is prospective, no TDS under this section is required for payments made in FY 2024–25.
Two Different Provisions, Two Separate Timelines
Despite their close connection to firm-partner transactions, the two provisions operate on different timelines. This distinction is crucial for accurate tax planning and compliance.
| Provision | Effective From | Applicable For |
| Section 40(b) | AY 2025–26 | FY 2024–25 onwards |
| Section 194T | April 1, 2025 | FY 2025–26 onwards |
Taxpayers are advised not to conflate the two and to take necessary steps in advance to align with both the amended and newly introduced provisions. Proper tax planning and documentation will be essential to avoid scrutiny and disallowances.
