Setoff of interest income against interest expense

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tarun

Student

22 Points Posted on 20 March 2012

Hi All,

Can you please elaborate if interest paid on borrowed funds can be treated as an expense to reduce income earned in the form of Interest on Partner's Capital, while calculating the Total Taxable Income??

The borrowed funds in this case were invested as Partner's Loan in a Partnership firm from which income is being received. Normally this would be included in the Income of the Partner receiving Interest on Partner's Loan. However, if the ROI of borrowed funds and that of Partner's Loan is the same, can it result in Interest Liability offsetting Interest Income so that there is no taxable income in such a case??

Thanks!!

Replies (2)

Anil Kumar Reddy

CA-Final

110 Points Posted on 20 March 2012

As per the provisions of ITA,

When partner capital is borrowed from else where and partner gets income from partnership firm towards such capital. Then the interest received can be set off with the interest expended. Therefore, your interest income can be setoff against interst paid to borrrowed capital which is invested in partnership firm.