Partnership Firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2010 If a partnership agreement stipulates that no interest can be paid to the partners on their capital if there is a Loss in the Firm,can the agreement be modified? In other words,can interest be paid if the Partnership Firm shows a loss in its Books?Are there any restrictions imposed by the Income Tax Act in this regard besides rate not to exceed 12% /

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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11 November 2010 As per section 40(b)(iv) of the Income tax Act,1961 payment of interest to partners should be authorized and in accordance with the terms of the partnership deed. In view of the above, the existing partnership deed has to be amended and executed in stamp paper so as to obtain the benefit of interest deduction.

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2010 Does it mean that even if there is a loss,interest can be paid to partners by amending the Parnership Deed? Pls confirm.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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11 November 2010 Yes it can be paid though the maximum rate of interest is 12% only as per 40(b).

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