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Interest paid to partners

Jai Kumar (business) (17 Points)

14 November 2017

Query for partnership firm. The rate of interest paid to partners is 12 % in the existing year. Can the rate of interest be reduced in next year ? Or it has to be same cos once 12 % is paid ? The partnership deed is silent on this and states the interest rates may be as per mutual consent.

Also One partner withdrawsa all his capital and other partner is invested fully. So is it compulsory to pay interest to partner with vested capital. The deed is silent and states as per mutual consent.

Please respond. Thanks

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Amitav (Chartered Accountant) (5993 Points)
Replied 14 November 2017

The payment of interest to a partner should not exceeed the amount calculated at the rate 12% p.a. simple interest. Any amount in excess of 12% will be disallowed. The payment of interest can be to any partner whether working or non-working.

Interest paid to the aprtner only on the fixed capital and current capital account and loan will be allowed only if this has been mentioned in the partnership deed. If partneship deed is silent then it will be disallowed.

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