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Interest on personal loan borrowed for starting business

Jishnu Surendran (Finance Manager) (312 Points)

01 October 2015

I am planning to start a partnership business with my friend. I am borrowing a personal loan for the purpose, the liability to be distributed between us equally. Is the interest on the same is allowable as business expenditure ? As far as I have learned, there is nothing in the act that specifically excludes such expenditure, but the loan shall be treated as a business liability in the Balance Sheet ? Please come up with your suggestions.

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4 Replies

Vikas Gupta (Tax Executive) (530 Points)
Replied 01 October 2015

The loan taken by your firm will be treated as business loan to establish/promote your business and the interest on such loan is allowed as business expenditure. Also, such amount of loan will be treated as long term borrowings of the firm.

Miss Rinkal (Student) (1304 Points)
Replied 01 October 2015

I do not agree with Vikas Gupta. The personal loan taken will not be allowed as business expenditure. Only loan taken by the firm will be allowed as a deduction.

Jishnu Surendran (Finance Manager) (312 Points)
Replied 01 October 2015

Yeah thanks ! The allowabililty of the expenditure is in conformity with what I've believed. But, does the Income Tax Act specifically provides anything regarding accounting the same. What if it is equally divided for business and personal purposes ?

suresh kapoor (director) (22 Points)
Replied 01 October 2015

If you introduce the loan as capitals, and in the deed of partnership you incorporate intrest to partners then I am sure you will of set the intrest you pay personally on loan by way of intra on capital debited to profit and loss a/c of the firm as expenses.