Interest on Capital

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UMASHANKAR M S (Querist)
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27 November 2008 Dear Members

1. My senior told interest on capital calculated at cumulative balance?

2. Interest on Capital calculated at capital account include current account of partner's it's correct or wrong

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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27 November 2008 Section 40(b) of the income tax act,1961 does not specify the method of calculation of interest. Thus a rational method can be adopted. In order to avoid disputes it is better to mention the method of calculation in the partnership deed. If the partnership deed contains a provision to provide interest on current account it will be allowed otherwise not.