Tax Audit Liability for Partner having Loss from business due to Debit Interest

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This discussion clarifies tax audit requirements for a partner experiencing a business loss stemming from debit interest charged by the partnership firm. It confirms that if the partnership deed allows for interest on debit balances and the firm declares this interest income in its ITR, the partner's business loss can be set off against other income. However, the interest paid by the partner to the firm is not deductible as an expense against their remuneration.

Babubhai patel

Babubhai patel (Querist)
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01 January 2022 Dear Sir / Madam
Assessee is Partner in Partnership firm and having Income Partnership firm and other Interest Income. During the FY 2020-21 Assessee had Debit Capital Balance in Firm so assessee has Interest exp which is more than salary received to firm and salary and profit from partnership firm. Due to this Assessee has Business Loss which is set off against other income in computation. But while filing the Return error comes " Tax payer has loss from business and no P&L and BS not filed in Part A and has not got books of account audited.
But Assessee has no business other than Share of Income from Partnership Firm only.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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01 January 2022 1. Is there clause in partnership deed to charge interest over debit balance of partner/s?
2. Whether the interest income is declared by firm in its ITR?
3. Interest charged by firm in such manner is not deductible as expense in partner's ITR.

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Babubhai patel

Babubhai patel (Querist)
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03 January 2022 Dear Sir Thank you and Answer of your Question is as under.
1. Yes, There is clause for charge of Interest over Debit Balance.
2. Yes, Firm has declared the interest income in its ITR.
3.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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03 January 2022 The interest paid to firm for loan amount is not deductible as expense from the remuneration derived from firm.

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