disallowance u/s.40(b)

Hi rishub

Sec. 40 any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of [twelve] per cent simple interest per annum is not allowable as deduction.

its only suggestion and others r welcome

Dear Chitan,
You mean that interest on loan is allowable as deduction upto 12%.

ya

it is allwable up to 12% and extra will be disallowed

Interest on a partner's loan is also within Sec 40(b):

• Sec 40(b)(iv) covers "any payment of interest to any partner" authorised by and in accordance with the partnership deed. This includes interest on capital and on loans or current account balances. The aggregate rate allowed is 12% simple interest per annum.

• In your example: interest on capital (Rs 5 lakh at 12% = Rs 60,000) and on the loan (Rs 3 lakh at 12% = Rs 36,000) are both allowable, since each is at 12% or less. Interest above 12% on either is disallowed.

• Conditions: the deed must authorise the interest and specify the rate. Interest to a partner in a representative capacity (e.g. as karta of an HUF) is not covered by 40(b) in the same way (Explanation 1).

• TDS: from 1 April 2025, interest (and remuneration) to partners above Rs 20,000 a year is subject to 10% TDS under Sec 194T (Sec 393 of the Income-tax Act, 2025 from 1 April 2026).

• In the partner's hands, the interest is business income (Sec 28(v)) to the extent allowed to the firm.