Interest expenses allowable or not

This query is : Resolved

CA Sanjay Baheti (Querist)
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15 March 2010 Dear Mr Adtiya, My Query is as follows-:

Mr X being a partner in a Firm M/s ABC.

He has taken an Unsecured Loan @12% p.a. in his personal file and given to the firm ABC.

Whether Interest Paid @ 12& p.a. on Unsecured Loan as taken by Mr. X can be allowed as expenses in his personal file if

- he is charging interest @ 9% p.a. from the firm ABC.

Regards.

Ca Sanjay Baheti

Aditya Maheshwari

Aditya Maheshwari (Expert)
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15 March 2010 Firms are allowed to pay interest @ 12% p. a. on partners capital account. So he can charge interest @ 12% p. a. if the partnership deed provides for the same and interest expense be claimed in full.
However if interest income is @ 9% and expense @ 12% then the ITO may disallow the balance 3% of expenses. However i will find some case law where such interest allowable in full is assessed and update you with the same.

CA Sanjay Baheti

CA Sanjay Baheti (Querist)
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15 March 2010 can you clarify me that if the firm specified as per terms of deed that a lesser interest rate can be also provided in firm's books on partner's capital in case of book Loss (say 9% p.a.)
as mutually agreed between the partner's.

Then what's impact will be in the hands of Firm as well as in partner's individual case.

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