Interest on drawings-tax effect

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Ameya (Querist)
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13 April 2016 Can I know whether interest on drawings of partners is taxable in the hands of firm?If yes,then shall it be taken into a/c for calculating book profits u/s 40 (b)?

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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13 April 2016 Yes, if firm is taking from anyone that will be a part of firm income so take as a income.

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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13 April 2016 If the firm pays interest to a partner and the partner pays interest to the firm on his drawings,
then the interest shall not be netted off. The interest received by the firm from the partners on
their drawings is taxable in the hands of the firm as income under head Profits & Gains of
Business or Profession. The interest paid by the firm to the partners is allowable as per Section
40(b)

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