Interest on Capital-Partnership Firm

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Discussion on whether a partnership firm can restrict interest on capital to opening balances only and cap the rate at 12%. Experts confirmed that such a clause is legally valid and tax compliant if properly drafted in the partnership deed.

anuj kumar khaitan

anuj kumar khaitan (Querist)
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14 January 2026 Can a parnership firm insert a clause in its deed wherein it is stated that the Interest on Capital will be payable to the partners at rate not above 12% and the same shall only be payable on the opening credit capital balance of the partners.No interest shall be payable on the capital withdrawn or introduced during the Financial Year for which the Interest is to be calculated.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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15 January 2026 Yes — a partnership firm can validly insert such a clause in its partnership deed. It is legally permissible and tax-compliant, provided it is properly drafted.

anuj kumar khaitan

anuj kumar khaitan (Querist)
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15 January 2026 Ok Sir. Please guide for the Drafting of the same.

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