A proprietor takes some loan from his wife and pays interest over this amt. Wife shows the Interest Income while filing her ITR while husband claims this expense in his P&L A/c. Will this Transaction valid in IT provisions or any rule prohibits or disallows such transactions?
22 May 2009
Can u pls elaborate your reply. Here YES is for Validity of transaction or disallowance of expense. & What is the meaning of Reasonable under IT Act?
22 May 2009
Section 64(1) of the Income Tax Act 1961 lays down the law with respect to clubbing of income of spouse,minor child etc.,The proviso to clause (ii) of the section excludes income arising to the spouse where the spouse possess technical or professional qualifications and the income is solely attributable to the application of his/her technicalor professional knowledge or experience Please also read the Explanations to this sub-section There are several case references find something which matches yours
22 May 2009
It is allowable provided it is reasonable. Reasonableness is generally attached to rate of interest. Ensure that maximum rate of interest is 18%. The income would clubbed only if the money was gifted by the husband.
23 May 2009
Yes, it is allowable . Take care of section 40A, 269T & 64(1) and TDS provisions. Interest generally should be below 20% . Also consider at what rate of interest you have given to other parties.
CAclubindia
