INTEREST ON BORROWINGS

Hi!

Mr.A has invested loan amount in partnership firm. here the firm can debit the interest not exceeding 12% p.a simple rate as interest paid on capital. Mr.A has no provision to claim interest against firm name. he is assessable seperately. It will be treated as income received to Mr.A.

MY QUESTION IS Mr.A ELIGIBLE TO CLAIM INTEREST ON BORROWINGS AGAINST THE INCOME FROM PARTNERSHIP ON HIS PERSONAL ASSESSMENT. PLEASE REPLY

Dear Muthuswamy,

Yes Mr. A is eligible to deduct the interest paid on personal loan, which is introduced as a Capital in the Firm... 

No, Mr A cannot deduct interest paid on personal loan from the profit of firm, But he can deduct interest paid to partner as interest on cap. if the clause in the deed is mentioned as aplicabe rate only.

He can deduct the interest from his personal income only

Income from Partner shipfirm (Profit) will be taxable under the head PGBP whereas Income from firm by way of Interest is taxable under the Head OTHER SOURCES.Hence as per SEC.57 of IT act which deals with deductable expenditure states that Expenditure incurred Purely for earning the Income are allowable. Hence in your case if the loan is borrowed with an intention to invest in firm then interest paid on Personal will be allowed as deduction in the hands of the Individual.Moreover the Interest paid should not exceed the Interest Income received from the Firm. Even if the Interest Paid exceeds the Interest Income it will be Limited to only Interest Income which was received from the Firm. 

Case Law please