interest to nri partner on capital

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2011 can u please let me know, rate of interest to be paid to nri partner on his capital and if any tds to be deducted on interest paid to nri partner on his capital

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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28 June 2011 Interest up to 12% p.a. or at such lower rate as prescribed in Deed of Partnership
can be paid to NRI partner. TDS is not applicable on interest payable to partners.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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29 June 2011 Bafna Ji

Non applicability of TDS on interest paid to partners covered u/s 194A(3)(iv) is restricted to those partners who are resident in India. Here, the partner is a non resident and hence TDS provisions as per section 195 attracts.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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29 June 2011 Warrier Sir,

Thank you very much for your valuable opinion in connection with TDS on interest to NRI partners. However, after going through the points, your reply will be appreciated-

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1. Section 195 talks about "any interest".
Whereas I am of the opinion that the income is arising to the partner by virtue of Section 40(b) which should be considered as business income only and not as Interest.
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2
Where ever a firm has been allowed to show its income according to the schemes of presumptive income, interest and salary to partners is allowed after arriving firm's presumptive profits.
Has this been a normal interest, it can rightly be covered U/s 36 which lies between Section 30-38.
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3. The payment of interest to partner is a kind of appropriation of profit and deduction U/s 40(b) is a special benefit given to the firm. TDS U/s 195 will be made applicable only when the remittance will be made and not merely on the book entries.

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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29 June 2011 Bafna Ji

The word 'resident' is used in section 194A(1). Pl comment.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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29 June 2011 Yes sir, I have got it. Thank you very much.

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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03 July 2011 Hope the following provisions of FEMA have been taken care of :
1.the amount invested is received either by inward remittance through normal banking channels or out of an account maintained with an authorised dealer/authorised bank by the non-resident Indian or the person of Indian origin in accordance with the relevant Regulations;

2.the firm or the proprietary concern is not engaged in any agricultural/plantation activity or real estate business, i.e. dealing in land and immovable property with a view to earning profit or earning income therefrom;

3.the amount invested shall not be eligible for repatriation outside India;

Anuj
091-9810106211

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