Interest on capital to partner in case of loss?

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Practice
1 Points Joined March 2023
a partnership firm is in loss before giving interest on capital and remuneration to partners. whether it is allowed? kindly mention sections also.
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On 18 September 2024 at 16:18 Report
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Master in Accounts & high court Advocate
9434 Points Joined December 2011

Yes, a partnership firm can claim losses even if it has insufficient profits to cover interest on capital and remuneration to partners. As per the Income Tax Act, 1961: - Section 70: Allows a partnership firm to set off losses against profits from other sources. - Section 71: Allows a partnership firm to carry forward losses to future years. - Section 72: Allows a partnership firm to set off losses against profits from the same business. However, regarding interest on capital and remuneration to partners: - Section 40(b): Allows a partnership firm to deduct interest on capital and remuneration to partners only if there are sufficient profits. - Section 40(b)(iv): Specifically states that interest on capital and remuneration to partners is not deductible if the firm has incurred a loss. In your case, since the partnership firm is in loss before giving interest on capital and remuneration to partners, it may not be allowed to deduct these expenses. However, the firm can still claim the losses and carry them forward to future years.

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On 19 September 2024 at 19:32


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