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Interest on Partners Capital?

amit retharekar (B.Com Company Secretary) (50 Points)

07 October 2010

n hey is the provision relating to Interest on Partners Capital applicable when Partners Capital A/C shows a DEBIT blalance, in tat case can we charge him Interest on his Capital A/C n take it to the CREDIT Of PROFIT & LOSS A/C?

There are lots of cases of Partners Capital A/C being OVERDRAWN, can we charge interest on such DEBIT balance of Partners Capital A/C?

Is tat to be specified in the DEED???

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3 Replies

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 07 October 2010

The IT act does not specify anything about this in this section. It depends upon the deed. But generally, we include a statement in the deed regarding the interest to be charged, in case of excess witdrawl by th partners

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karan challani (article) (82 Points)
Replied 08 October 2010

u can charge interest to the partner... but it is better to make a supplimentary deed...to support the transaction

Karan Thacker (CA) (117 Points)
Replied 08 October 2010

As per the provision of Indian Patnership Act,1932 there is no compulsion to pay or to charge interest on patner's capital A/c, however it has has specified that any patnership firm who wants to include such clause can include it in Patnership Deed.

Further spaeking in benefit of Patners clause should only be entered for the interest payable by firm towards patner's capital, there should not be addition of any clause for charging interest from patner because if done so it will generate income for the patnership firm which will result into payment of tax.