Query(s) in partners interest on capital

This query is : Resolved

Guest

Guest (Querist)

29 October 2013 Hi,

Someone may please see the following and IF POSSIBLE, give reply:

Query(s)

A partner who has overdrawn and hence, the current account becomes negative of that partner.

Whether such partner is eligible for ‘Interest on capital’. If so, this ‘Interest’ to be computed on only Capital Account or even on negative Current Account.

Kindly clarify the basis with any supporting, please.

Ans : ………………

Is it appropriate to compute ‘Interest on partners’ current year share profit’?

Ans : ………………

In view of ‘negative balance’ relating to interest on capital, I am unable to enter the negative amount in Tax Audit Form for Clause 18. Whether form will accept negative interest amount in this clause. (I am able to understand, there seems to be some confusion made by the concerned person in computing Interest on capital, but I am just looking for some clarification).

Ans : ………………

Thanks in advance for your replies.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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29 October 2013 1. You need to check the partnership deed for the clauses on charging interest on negative balance.

2. The interest on capital is also to be provided on the basis of the partnership deed.

3. Profits are shared in the profit sharing ratio. I dont think negative balance in current account has anything to with it.

4. If the interest is to be charged on negative balance, then charge it and show it is as interest on loan/drawings to the partner.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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29 October 2013 In view of ‘negative balance’ relating to interest on capital, I am unable to enter the negative amount in Tax Audit Form for Clause 18. Whether form will accept negative interest amount in this clause. (I am able to understand, there seems to be some confusion made by the concerned person in computing Interest on capital, but I am just looking for some clarification).

Ans : Please do not show interest on capital in clause 18 of form 3CD. Whereas the in admissible portion,if any, has to be shown in clause 17(g) of the said form.

Guest

Guest (Querist)

29 October 2013 Thanks a lot for the replies - Mr. N Kaushik and Mr. Warrier.

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