Interest paid to the partners

As per section 40(b) of IT act, 1961.......

How much remuneration or interest to partner is allowable?

• a) Interest payable to partners shall not exceed 12% per annum.
• b) Remuneration payable to partners shall not exceed the following limit:
  • On first Rs. 3 Lakhs of book profit or in case of loss - Rs. 1,50,000 or 90% of book profit, whichever is more;
  • On the balance of the book profit - 60% of book profit.

Sir.,

How to calculate Interest for capital...? As per Deed 12% allowed as Interests in our Firm...

i) Introduced capital Rs. 125000 - 4 Partners = 500000

ii) PY c/f capital Rs. 243550 - 4 Partners = 974200

Please give me Calculation or Examples... I can't understand this way of Interest calculations...

@ Shahul Batcha: Yes, as per amendment in finance act, 2016 (effective AY 2017-18 & onwards)........ any firm declaring income under pressumptive assessment (u/s. 44AD/44ADA) is not allowed to deduct partner's interest & remuneration from such declared income.

But for normal assessment, there is no such restriction.

  @ Jeevika & Co....... Interest is paid over the Capital balance amount and not just over capital introduced.......... in your case, if no other capital introduced or withdrawn by partners, it is calculated on total of Rs. 9,74,200/-  and credited to each partner's account as per its share.

But note that under presumptive assessment the same is not allowed to be deducted.

THANK YOU SIR......

Most Welcome.........