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Querist : Anonymous

Querist : Anonymous (Querist)

15 March 2018 sole proprietors in India use a current account for their business, rather than a savings account, to avoid interest.

I don't understand why — if you account for the interest properly and pay tax on it, it shouldn't be a problem, right? I won't have a transaction every day on this account, so a savings account should be fine. I see no reason to refuse the interest if I can earn it and, worse, pay more fees for a current account.

Is a sole proprietor not allowed to earn interest from a bank account?

CA Ashish Agrawal

CA Ashish Agrawal (Expert)
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15 March 2018 The reason for not using savings account for business is not Interest, there is no clause in Income Tax Act which reflects sole proprietor's to use Bank Interest. Current Accounts are basically designed keeping requirements of business in mind. For example withdrawals limits are multiple times as compared to savings account. Also the purpose of savings account is meant for personal transactions, and therefore even the IT department sends you inquiry letters if you have deposited Rs. 10L or more cash in your savings bank account. Therefore Current Account being suitable for business is being used in India by proprietors for their business purpose.

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