Interest paid on partners capital by the partners

Hi , I am of the opinion that as per the provision of section 194A : "Interest other than Interest on Securities" no Tds to be deducted in case interest is paid to partners.

First of all there is no logic of paying interest on negative capital.

Also the TDS is not deductible on Intt on partners capital.

NO TDS                                           

Hai..

There is no need to pay interest on the negative balance. Even then if you are supposed to pay then why should you deduct TDS. TDS is to be deducted if you are liable for audit under 44 AB

Thanks to all f

*Prerna .... can u elaborate about the logic for  not paying interest on overdrawn capital....

*ADITYA............. can u give any refrence for not deducting on the same

I concur with Prerana for not to pay interest on overdrawn capital. Logic being - a business & its owner are separate entities as per company's act. Hence at all times, the business need to look at its capacity to pay to preferential creditors or stakeholders. In the given case, the business is not earning or doing well; in such case owner/ proprietor/ shareholder should not lay claim or be paid interest on his capital.

And now assuming, interest is paid - I disagree with Aditya. Income tax act does not distinguish a business with eroded capital or otherwise. It requires the entity in question to deduct TDS at all times if it falls within the ambit e.g. not a bank or such institution as notified.