Interest paid on partners capital

This query is : Resolved

P.Lingam (Querist)
Follow

20 March 2010 We are paying the interest on partners capital and at the same time not collecting the interest on debit balances of partners current accounts. Shall the interest paid on partners capital will be disallowed by the Income Tax authorities.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
Follow

20 March 2010 Have a look at the partnership deed. If the deed contains a clause that interest shall be paid to partners on the capital account and shall not be paid on the current account balance, then you are safe. Otherwise, ITO will either disallow the interest charged, on the view that interest is levied not in accordance with the provisions of the deed or levy interest on the debit balance. Any way issue is debatable.