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of <h1>Income-tax Act, 1961: Section 40 Amended to Clarify Disallowance of Interest Payments Between Firms and Partners.</h1> Section 40 of the Income-tax Act, 1961, is amended to include explanations regarding the disallowance of interest payments between a firm and its partners. Explanation 1 limits the disallowed interest amount to the excess paid by the firm to a partner over what the partner paid to the firm. Explanation 2 clarifies that interest transactions involving partners in a representative capacity are considered, while those not in such capacity are excluded. Explanation 3 specifies that interest paid to an individual partner, not in a representative capacity, is excluded if received on behalf of another person.
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