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Interest paid to partnership firm

CA Komal N Somaiya (TAX PRACTITIONER) (66 Points)

30 July 2012

HI FRIENDS

I HAVE ONE QUERY REGARDING INTEREST PAID TO PARTNERSHIP FIRM.

THE ASSESSE IS HAVING INCOME FROM COMISSION (OTHER SOURCES) AND REMUMERATION FROM PARTNERSHIP FIRM ( ABC FIRM)

THE ASSESSE HAS PAID INTEREST TO FIRM (ABC FIRM ) WHERE HE IS PARTNER.

MY QUESTION IS WHETHER THE ASSESSE WILL GET DEDUCTION OF INTEREST PAID TO FIRM.AND IF YES THAN UNDER WHICH HEAD AND SECTION..

THANKS IN ADVANCE

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4 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 30 July 2012

Income of a partnerworking in a P'ship firm is considered as business income & assessed accordingly. If the partner has taken any loan from the firm & has paid interest to the firm, thne I think that the interst would be allowed as an deduction as the same would be considered as expense in earning the income.

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CA. Dushyant ZALA (PRACTISING C.A.) (72 Points)
Replied 12 February 2013

I agree with Mr. Girdhar. It is taxable under the head of Business Income.

Remuneration from firm ----------

less:- Interest Paid To -----------

Firm

Nikhil Kaushik (Fellow CA) (85657 Points)
Replied 13 February 2013

Dear Komal,

Just make sure that if questions asked during the assessment, sufficient justification can be given for the interest paid.

For eg. what was the purpose of the money on which the interest was paid? was that money used for any other business? or was it used for domestic/ non-business expenditure?

Also, please make sure that proper documentation is available on record as an evidence for interest liability. Also, need not forget that a certain portion of the interest paid shall come back to the assessee in form of the profit from the partnership firm.

PARAS CHHAJED (CA Practice ) (1007 Points)
Replied 03 October 2018

In my opinion TDS is required to be made by the partner ifrom interest paid by him to the firm f he is required to make TDS for the reason that his accounts are liable to be audited u/s 44AB.