20 March 2010
We are paying the interest on partners capital and at the same time not collecting the interest on debit balances of partners current accounts. Shall the interest paid on partners capital will be disallowed by the Income Tax authorities.
20 March 2010
Have a look at the partnership deed. If the deed contains a clause that interest shall be paid to partners on the capital account and shall not be paid on the current account balance, then you are safe. Otherwise, ITO will either disallow the interest charged, on the view that interest is levied not in accordance with the provisions of the deed or levy interest on the debit balance. Any way issue is debatable.
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