Interest to partners

No, partnership deed shoud contain the rate of interest, otherwise the interest debited to P & L A/c shall be disallowed u/s. 40(b)(iv) of IT act.

According to the provisions of sec 40(b) Those payments (like salary,INTEREST,COMMISSION etc) to partners are allowed as deduction which are in accordance with the partnership deed. If the partnership deed does not contain such provisions then the deductions may be disallowed.

So if nothing is mentioned in partnership deed and still the assesse is claiming the deduction then the same shall be disallowed.

(Salary , remuneration etc. can only be paid to working partner)

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"interest is payable on mutual understanding among partners"

According to Circular no. 739 dt 25/03/1996 issued by CBDT no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration.

In my opinion the deed does not specifies the amount or laid down the manner of quantifying such remuneration.

So for availing 12% interest. It should be firstly be authorized by partnership deed. 12% is the maximum rate which is allowed . Further such paymnet should be falling after the date of the partnership deed.

It is disallowed as per conditions laid down by Sec. 40(b) and clearly specified by the circular 739 dt 25/03/1996 issued by CBDT

Dear all , Can anybody tel me what are rules for remuneration to partners ?? and profit ??

Originally posted by : Z
	According to the provisions of sec 40(b) Those payments (like salary,INTEREST,COMMISSION etc) to partners are allowed as deduction which are in accordance with the partnership deed. If the partnership deed does not contain such provisions then the deductions may be disallowed. So if nothing is mentioned in partnership deed and still the assesse is claiming the deduction then the same shall be disallowed.   (Salary , remuneration etc. can only be paid to working partner) . "interest is payable on mutual understanding among partners"   According to Circular no. 739 dt 25/03/1996 issued by CBDT no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration.   In my opinion the deed does not specifies the amount or laid down the manner of quantifying such remuneration.   So for availing 12% interest. It should be firstly be authorized by partnership deed. 12% is the maximum rate which is allowed . Further such paymnet should be falling after the date of the partnership deed.

IS ABSOLUTELY CORRECT.

hence the already expended 6% in the books wud be disallowed.

to avail 12% the deed has to be suitably amended nd an approved copy thereof shud be submitted wid the return of income

Hey Friends

CBDT realeses new circular for partnershepp deed. As per circular (PROPORTION OF REMUNERATION AND INTEREST MUST BE FIXED) not in form of percentage.

Refer it.

Thanks for the update Mr. Bunha.

Thanks Mr. Vikas , such comments are very encouraging.