Interest on partners capital in case of loss

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Interest on a partner's capital is generally only allowed if the business makes a profit. However, there are specific conditions under Section 40(b) that must be met, even in the event of a loss. These include authorisation by the partnership deed and ensuring the interest payment period aligns with the deed's date.

Pandy ji

Pandy ji (Querist)
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07 October 2024 Whether interest on partners capital allowed in case of loss ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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07 October 2024 Interest on capital is allowed only if there is profit.

Pandy ji

Pandy ji (Querist)
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07 October 2024 Please provide an explanation about section applicable and related provision

Pandy ji

Pandy ji (Querist)
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07 October 2024 Please provide an explanation about section applicable and related provision

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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07 October 2024 Interest payable to partners
So far as allowability of interest paid by a firm to its partners under section 40(b) is concerned, the following conditions have been prescribed by section 40(b):

(1) The interest payable by a firm to its partners should be authorised by and in accordance with the partnership deed.

(2) The interest payable by a firm to its partners should not be for a period falling prior to the date of such partnership deed authorizing the payment of such interest.

In case the above conditions are fulfilled pay interest in case of loss.

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