Business taxation advice - urgent


Hi,

I am a partner in a firm. I have availed a personal loan of 5lacs and introduced it into the firm. The firm pays back a definite amount each month which I pay to the loan provider bank in form of EMI.

The amount that the firm pays to me each month, will it be considered as an expense for the company and will it be deducted from the profitable income of the company?

Please help! 

 
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Corporate & Tax Lawyer

Dear Sir, 

The loan taken by partnership firm comes under the head loan in firm's balance sheet but when the EMI is paid to you by the firm, in such case the interest part be shown as expenses in firm's profit and loss account and the principle part would be deducted from loan a/c in balance sheet .

So, only interest part would be deducted from profitable income of firm.

send further query on askcommercials@gmail.com

 
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ADVOCATE

Your Query: Will the amount that the firm pays to me each month,  be considered as an expense for the firm and will it be deducted from the taxable income of the firm?

 Reply: Repayment of the loan amount, being a capital expenditure, will not be a deduction. But the interest thereon, being a revenue expenditure, will be a deduction.

 
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ADVOCATE & TAX CONSULTANT

Dear Dipankar,

First you should check the partnership deed, that there must be a clause should allow the partners to borrow loan from outsiders or financial institutions, with rate of interest.  The interest rate shall not exceed 12% per annum.  The principal content is capital nature and the interest portion is revenue nature.  You can deduct the revenue expenditure in the profit of the firm. 

 
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Assistant Manager- Taxation

Dear Dipankar,

You Could have done this any of the below ways

Case 1 : If you are Charging Interest to your Firm on Loan provided by you

In this Case your  Income would be 'interest on Loan received from Your Partnership Firm'. Please Note that repayment of Prinicipal received would not be an Income to you & Not Chargeable.

Only Interest is chargeable.  Against this Interest your can set-off the 'interest' that you pay to Bank for the Loan.

Case 2 : If You have Provided Interest Free loan to your Firm 

In this case then there would be any Income from Firm & Nothing is Chargeable & The Interest you pay to bank cant be Claimed anywhere

Case 3:  The Loan which you got from if You have Introduced in your firm as 'Partner Contribution/ Captial Contribution'.

The the Share of Profits that you Receive would be Ur Income . However as per section 10(2A) of IT Act , the share profits are exempted from Tax http://www.exploreincometax.com/Indian-Income-tax-Act-1961/Section-10

So as per section 14A of IT Act , the expense that met for earning 'Exempted Income' would not be allowed as per Section 14A http://www.exploreincometax.com/Indian-Income-tax-Act-1961/Section-14A

Hence in this case you can't claim Interest that you pay to Bank.

Source : http://www.exploreincometax.com

 
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