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Income tax query..........

Ajnas (Student) (844 Points)

03 January 2022

what is the method of interest calculation for section 40(b) dissallowance? daily outstanding balance or opening capital,? if deed specifically provide the interest on capital is calculated on the opening balance of fixed capital, then for Income tax dissallowance it is alson calculated on the same opening balance ?

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Rishabh Solanki (7 Points)
Replied 03 January 2022

I could not find any specific rule in the Income Tax Act regarding the base for calculation of interest on capital paid to the partners. In my opinion, the calculation of interest for the purpose of section 40(b) would be the same as calculated by the partnership firm and provided in the deed.

If the calculation base specified in the deed is on the opening balance, the same shall also be used to calculate the interest as per 40(b), if the deed provides for interest on the daily outstanding balance, such base should be used for income tax purpose.

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