40b disallowance

Tax queries 1461 views 10 replies

Q1.

for the purpose of determinig partners remuneration whether interest paid to partners is to be disallowed or not. if yes in whch situations it will happend.

Thanks  2 all

Q.2 If an individual is partner in a firm in represent status then interest paid to him whether attract any disallownance.......

Plz clarify with all possible siturations

 

 

Replies (10)

Interest upto 12% is allowed, In excess of 12% disallowed

AGREED WITH ABOVE

In excess of 12% is  disallowed

it will be allowed upto 12% (excess will be disallowed) for computing book profit in respect of partners remuneration.

It should not be exceeding 12%p.a. and it should be authorised by and in accordance with the partnership deed

Agreed with above answers..

 

And for ur second question,

  • If partner receives it is in representative capacity, then the interest in excess of 12% can be allowed.. Read Explanation to Sec 40(b)..
  • However, it may be disallowed u/s 40A(2), if it attracts the criterias of that section..

Yes, interest paid to partner is allowed(i.e.  to be deducted )  while computing remuneration to the minimum of following 

(i) actual interest paid

(ii) interest @ 12% p.a. 

(iii) Interest at the rate specified in partnership deed submitted to department 

u/s 40(b) interest paid to partner is deductible if it does not exceed simple interest 12% p.a.

if interest is exceed 12% then excess amount will be disallowed.

if partner get interest in a representative capacity:

Explanation 1 says it is allowed . (it can be more then 12% p.a.)

if a partner get interest in both capacity in personal and in representative capacity then for personal interest 12% condition is applicable but in representative capacity interest it is full allowed.

Thank u prashanth garu....... i got clear answer from u

 

u/s 40(b) interest paid to partner is deductible if it does not exceed simple interest 12% p.a.

if interest is exceed 12% then excess amount will be disallowed.

if partner get interest in a representative capacity:

Explanation 1 says it is allowed . (it can be more then 12% p.a.)

if a partner get interest in both capacity in personal and in representative capacity then for personal interest 12% condition is applicable but in representative capacity interest it is full allowed.

Pls note! 

  1. Partnership agreement must provide for such interest payment.
  2. interest must be paid for a period post the agreement date.
  3. Interest paid in excess of 12% p.a computed on Simple Interest basis is disallowed.

Thus to  make it concise, interest actually paid as per the Partnership Agreement or Interest as computed @ 12% p.a. on Simple Interest basis, which ever is lower is allowed as deduction u/s 40(b)

Rgds.

mail/fb - sanket_kamath2004 @ yahoo.co.in

place - bangalore


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