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Interest on capital

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(Querist)
08 December 2011 Income Tax Act provides for the allowance of interest paid on capital in case of a partnership firm in accordance with the provisions of section 40(b).

Whether this interest is to be calculated on the opening capital balance or the opening capital balance be reduced by the drawings for interest calculation ??
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Aditya Maheshwari

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Aditya Maheshwari (Expert)
08 December 2011 Interest needs to be calculated on daily balances.
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Ratan Sharma

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Ratan Sharma (Expert)
08 December 2011 Actually it should be calculated as per the method provided in the partnership deed. If nothing is specifically provided then it should be calculated on daily balances.
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