Proprietorship firm and unsecured loans interest rates

Mr.MKA

What is the method of accounting regularly and consistingly being followed by you - is it mercantile method or cash basis?  Your question cannot be answered unless you reveal your  method of accounting.

Best Wishes

Sathikonda

If you are coming u/s 44AB and If the interest payment exceeds 5000/- per annum per person, you have to deduct  tds @ the rate of 10%. 

It is optional for you to pay the interest @ the rate of 10% or 8% or nil.  

Mr. Sathikonda,

I follow the mercantile method of accounting.

Thanks

Mr.MKA

The rate of interest can be changed by re-executing the promissory note or any other document between the parties.  But the decision not to pay interest to the two lenders may create some suspicion in the minds of the Income-tax Authorities in respect of genuiness of the loan.  There is no statutory provision in this regard.  It all depends on the facts of the case.

If you do not pay interest for one year and if you want to pay the interest in the next year for the earlier also i.e. interest for the year in which you did not pay and the interest for that year, the interest for the prior period will not be allowed as a deduction from your profits since you are following mercantile system of accounting.

Best Wishes

.Sathikonda