Assessment when section 325 not complied with
[Section-326 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Irrespective of anything contained in any other provision of this Act, where a firm does not comply with the provisions of section 325 for any tax year,—
- (a) no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing its income chargeable under the head “Profits and gains of business or profession”; and
- (b) such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under section 26(2)(g) in the hands of partners of such firm.
FAQs on Section 326 of Income Tax Act 2025
What is the consequence under Section 326 if a firm fails to comply with Section 325 for any tax year?
If a firm fails to comply with Section 325 for any tax year, then it cannot claim any deduction for payments made to its partners in the form of interest, salary, bonus, commission, or remuneration while computing its business income.
Are payments to partners still taxable in their hands if Section 325 is not complied with by the firm?
No, such payments (interest, salary, bonus, commission, or remuneration) will not be chargeable to income-tax in the hands of the partners under section 26(2)(g) if Section 325 is not complied with.
Does Section 326 override other provisions of the Income Tax Act, 2025?
Yes, Section 326 begins with a non-obstante clause, meaning it overrides all other provisions of the Act.
What types of payments made by a firm to its partners are disallowed if Section 325 is not complied with?
All types of payments including interest, salary, bonus, commission, and remuneration, by whatever name called, made to partners are disallowed as deductions.
Will the partners have to pay tax on disallowed payments from the firm if Section 325 is not complied with?
No, such disallowed payments will not be included in the income of the partners for taxation purposes under section 26(2)(g).
Is the disallowance of partner payments under Section 326 limited to any specific heads of income?
Yes, the disallowance applies to the computation of income under the head “Profits and gains of business or profession”.
Does the provision apply even if the firm has valid business operations?
Yes, the applicability of Section 326 is independent of the firm’s business operations. It is triggered solely by non-compliance with Section 325.
From which date is Section 326 effective?
Section 326 is effective from 1st April, 2026.
What is the purpose of linking the deductibility of partner payments to Section 325 compliance?
The linkage ensures compliance with Section 325, which likely deals with procedural or substantive requirements related to firms, by denying tax benefits in case of non-compliance.
Can the firm claim any part of the disallowed payments in subsequent years if compliance is restored?
Section 326 does not provide for carry-forward or future deduction of the disallowed payments; they are permanently disallowed for the year of non-compliance.
