40b disallowance

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Q1.

for the purpose of determinig partners remuneration whether interest paid to partners is to be disallowed or not. if yes in whch situations it will happend.

Thanks  2 all

Q.2 If an individual is partner in a firm in represent status then interest paid to him whether attract any disallownance.......

Plz clarify with all possible siturations

 

 

Replies (10)

Interest upto 12% is allowed, In excess of 12% disallowed

AGREED WITH ABOVE

In excess of 12% is  disallowed

it will be allowed upto 12% (excess will be disallowed) for computing book profit in respect of partners remuneration.

It should not be exceeding 12%p.a. and it should be authorised by and in accordance with the partnership deed

Agreed with above answers..

 

And for ur second question,

  • If partner receives it is in representative capacity, then the interest in excess of 12% can be allowed.. Read Explanation to Sec 40(b)..
  • However, it may be disallowed u/s 40A(2), if it attracts the criterias of that section..

Yes, interest paid to partner is allowed(i.e.  to be deducted )  while computing remuneration to the minimum of following 

(i) actual interest paid

(ii) interest @ 12% p.a. 

(iii) Interest at the rate specified in partnership deed submitted to department 

u/s 40(b) interest paid to partner is deductible if it does not exceed simple interest 12% p.a.

if interest is exceed 12% then excess amount will be disallowed.

if partner get interest in a representative capacity:

Explanation 1 says it is allowed . (it can be more then 12% p.a.)

if a partner get interest in both capacity in personal and in representative capacity then for personal interest 12% condition is applicable but in representative capacity interest it is full allowed.

Thank u prashanth garu....... i got clear answer from u

 

u/s 40(b) interest paid to partner is deductible if it does not exceed simple interest 12% p.a.

if interest is exceed 12% then excess amount will be disallowed.

if partner get interest in a representative capacity:

Explanation 1 says it is allowed . (it can be more then 12% p.a.)

if a partner get interest in both capacity in personal and in representative capacity then for personal interest 12% condition is applicable but in representative capacity interest it is full allowed.

Pls note! 

  1. Partnership agreement must provide for such interest payment.
  2. interest must be paid for a period post the agreement date.
  3. Interest paid in excess of 12% p.a computed on Simple Interest basis is disallowed.

Thus to  make it concise, interest actually paid as per the Partnership Agreement or Interest as computed @ 12% p.a. on Simple Interest basis, which ever is lower is allowed as deduction u/s 40(b)

Rgds.

mail/fb - sanket_kamath2004 @ yahoo.co.in

place - bangalore

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