Interest on cap when firm on loss
hdshardik
(Querist) 14 September 2014
This query is : Resolved
when firm is making loss in last two years , is it necessary to provide the interest on capital on partners capital account ? firm is ready to amend the partnership deed? pl give the insight on it.
ajay sethi
(Expert) 14 September 2014
raise query in CA club india .com
or consult your CA
Advocate. Arunagiri
(Expert) 14 September 2014
Interest has to be paid even in case of loss.
If the partners agree to waive it by a new agreement, there is no dispute.
Anirudh
(Expert) 14 September 2014
It will be better if the partners suitably amend their partnership agreement not to charge on the capital. They should do so at least till such time the firm earns profit and is in a position to pay the interest on capital. At that time, the partners may amend the partnership deed suitably.
If the partners do not alter the partnership deed, there will be income tax implications. For instance, the partnership firm will have to show "interest payable to partner on capital" and this will increase its loss. Since there is loss, there will be no implication on the partnership firm immediately.
On the contrary, the partner in his individual account has to show (if he is following mercantile system of accounting) as "interest receivable from firm on capital employed". This will go to increase his taxable income (whether he actually received it or not is not the question). He will have to pay income tax on that.
Rajendra K Goyal
(Expert) 14 September 2014
Amend the partnership deed accordingly.
