deduction of interest on unsecured loan

This query is : Resolved

dhawal shah (Querist)
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06 May 2009 dear sir ,

can we take deduction of interest paid on unsecured loan/secured loan taken in personal capital a/c of individual. as loan invested in partnership firm as capital .

can we deduct it from remuneration and interest recieved from firm on capital or not.or what should be treatment of interest on loan.

please give me reference about the same

chetan soni

chetan soni (Expert)
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06 May 2009 answered.

taxindiaconnect

taxindiaconnect (Expert)
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06 May 2009 Dear Dhwaval

Query is not very clear, however I assume that you are asking that if loan is taken in personal account by a person being a partner in a firm, the loan used for the business of the firm, can this be treated as capital of the individual in a firm. With this understanding my reply is that the firm is a separate legal entity from the partner. Unless the capital in specifically brought in to the books as capital of the partners it can not be treated as capital, However it can be treated as loan in the hands of the firm and payment of interest can be made to the partner. That interest will not be treatred for the purposes of calculating the remuneraion etc. of the parters. The income from interest on such loans to a partner would be treated as an interest income.

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CA Avinash Haldia

CA Avinash Haldia (Expert)
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11 May 2009 Yes the interest paid on the loan taken in personal capacity for investment in firm is deductible expenditure in the hand of the individual. This will be treated as loan taken for the business purpose as the investment in the firm is also for business purpose. It is similar to the loan taken for investing in shares of companies for business purposes.