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Interest on Partners Capital?

amit retharekar (B.Com Company Secretary) (50 Points)

07 October 2010

hiii everyone, INTEREST ON PARTNERS CAPITAL is allowable upto 12 % under Income Tax Act, what i want to knw is this rate of 12% has to be calculated on the closing balance+remuneration allowed u/s 40(b) at each partners capital account OR on closing balance of Partners capital A/C as on 31-03-......?(before crediting remuneration to his A/C)

seeking urgent reply..

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7 Replies

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 07 October 2010

Dear Amit,

Its on the capital contributed without adding the remuneration

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CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 07 October 2010

For reference u can go through the problem on presumptive taxation from May 04 paper. It is slightly similar to your query

Ranjana Pant (Article) (26 Points)
Replied 15 May 2012

whether interest on capital is on capital contributed only in cash or it can be also on capital introduced in kind(furniture brought up shall be liable for interest on capital)..............????

Amit Parmar (Student) (24 Points)
Replied 09 June 2012

Interest should be levied on partners capital or capital as per income tax In which share of profit is included

Aparna (Accountant) (25 Points)
Replied 10 September 2012

plz tell me interest on partners capital is calculated on closing balance of partners capital or not???????????????

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CA Saiyum khan (Practicing CA) (690 Points)
Replied 10 September 2012

Interest on capital has to be calculated on the running account balance of partners during the year starting from the opening balance. Normally interest and remuneration is credited to capital account at the end of the year. Hence interest on remunertion, share of profit and interest will not computed in the same year. However for the coming year the interest will be calculated on entire opening balance which encompasses the interest, remuneration and profit portion of the previous years.