Interest on Capital to Partners

This query is : Resolved 

Querist : Anonymous (Querist) 05 August 2010

Dear All,

We are at partnership firm with Two partners. This is regarding interest payable to the partner of firm. What is the rate of interest and how to calculate the interest, is any TDS applicable on interest. In partnership deed provision of interest is @ 15% per annum.

Point mentioned in Deed is as under

[The funds required for the purpose of the partnership business shall be contributed or arranged by the partners in such manner and may be mutually agree upon interest at the rate of 15% PA simple interest or such lower/ higher rate as may be prescribed under section 40(b) IV of the Income Tax Act, 1961 or any other applicable provisions as may be force for the Income Tax Assessment.]

Please guide is firm labile to pay interest on capital to the partners also want to tell we are not paying any salary or any reimbursement to any partners.

B.Chackrapani Warrier (Expert)
05 August 2010

The wordings in the deed is"contributed or arranged" which can be interpreted as capital contribution and loan arranged. If so interest can be claimed on both. The present allowable rate as per section 40(b) is 12% per annum.

TDS on such interest is not applicable vide section 194A(3)(iv)of the Income tax Act,1961.

05 August 2010


05 August 2010

as per income tax act maximum interest rate allowable is 12% on and above will be disallowed in the hands of firm .

tds will not be applicable on any amount received by partner from the firm.

Querist : Anonymous (Querist) 05 August 2010

As such there is no words like 'capital contribution and loan arranged'
One more thing firm labile to pay interest on Total (Capital+Current A/c) amount.

srinath (Expert)
05 August 2010

interest given on both capital and current a/c shall be allowed as deduction provided it is properly authorised in the partnership deed.

the word contributed or arranged is to be interpreted as capital and loan account

Querist : Anonymous (Querist) 06 August 2010

Lot of thanks to all for quick response.

You need to be the querist or approved CAclub expert to take part in this query .

Click here to login now

Similar Resolved Queries :

close x
Download GST App    |    x