Interest on capital under section 40(b)

We are a partnership firm. We follow fixed capital method of accounting. According to the deed partners are entitled to interest @ 12% on Capital account credit balance, calculated on actual duration of credit balance. now as per 40(b) interest should be in accordance with the the terms of the deed s.t @ 12% upper limit. it does not mention the word" interest on capital", it says "any payment of interest to any partner". So, my question is do i need to take into account partners current account debit balance to calculate allowable interest for income tax purposes? if yes please provide me with the relevant section.

Thanks

Replies (1)

- The interests on the credit balance in the capital account has to be calculated on the actual duration of the credit remains in the capital account

- and neither on Debit Balance in Capital Account, nor opening or closing day of financial year.

 

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