Discontinuance of Interest and Salary to working partners

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This discussion addresses whether it's permissible to forgo booking interest and salary for working partners when a partnership experiences a loss. Generally, this is allowed if the partnership agreement permits such flexibility or if partners mutually agree. It's important to ensure that the partnership deed governs these arrangements to avoid any tax rule violations.

Jacob Abraham

Jacob Abraham (Querist)

17 April 2025 Is there any issue if we do not book interest and salary for working partners to adjust the profit? This year, we are in a loss and do not want to book interest and/or salary for partners.

Is it allowed?
Are there any formalities to follow for the same?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

18 April 2025 Non-payment or non-booking of interest and salary in a loss year does not violate any tax rules, provided the partnership deed permits such flexibility. The partnership deed usually governs whether and how working partners receive salary or interest. If the deed does not provide for such payments, or if partners mutually agree not to book them in a loss year, it is allowed.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

28 September 2025 Good luck.....

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