deduction of interest u/s 57

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Rahul Kakaria (Querist)
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27 August 2010 Suppose a person has profit of Rs.15lakh from partnership firm which is exempted u/s 10(2a) and he also has interest income of Rs.660000 and salary income of Rs. 240000 from the same partnership firm. That person has also paid interest of Rs.600000 against loan,taken for creating his capital in firm. but the problem is whether he can claim interest of Rs.600000 (fully or partly) against interest income of RS.660000 u/s 57 or not.

is sec 14a applicable to this case under which we can't claim expenditure against exempted incomes?

Ans.1 Income from salary 240000
other source 660000
less:deduct u/s 57 600000 60000
taxable income 300000

Ans.2 income from salary 240000
other source 660000
less:deduct u/s 57 225000 375000
615000

Disallowance u/s 14a 150000 divided by 2400000 multiply by 600000 which is 375000
deduction u/s 57 after disallowing interest paid to earn exempted income. (600000-375000)=225000

tell me which ans is correct? 1st or 2nd

CA Ketan Jain

CA Ketan Jain (Expert)
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28 August 2010 As per section 14A any expenditure incurred for earning exempt incomeis not allowable. But in your case there is both taxable and exempt income from the partnership firm. So expenses incurred to be allocated between both income.