Debit balance in partners capital account

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 August 2012 I have a client partnership firm which in which one partner has debit balance in his capital account and the other has credit balance. The firm is paying paying interest as per section 40b @12% to the partner with credit balance and receiving interest @12% from the partner with debit balance. Is this allowed as per Income Tax Act and Can interest paid by this partner @ 12% be allowed as deduction for partner.

sourabh

sourabh (Expert)
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17 August 2012 A firm can receive interest from the partner having debit balance .

share of profit from firm is exempt in the hands of the partner , the interest paid by the partner to the firm is not deductible in the hands of partner

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CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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17 August 2012 It is allowed under income tax.The partner will not get deduction of interest against the share of profit. However, if he has invested the amount withdrawn from the firm to taxable investment then he can claim the deduction against the taxable income from Investment..

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