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Which of the following expenses is disallowed under income tax:-

1.Interest on Partner's Capital @18%.2.Interest on Partner's Loan @18%.3.Both Interest on Partner's Loan @18% & Interest on Partner's Capital @18%.4.None of these.

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Question added by Dasarathi Rath , Sr. Accountant , Al Luban Special Investment LLC
Date Posted: 2014/04/25
Muhammad Zubair
by Muhammad Zubair , CFO / Chief Accountant , RH Group

.Interest on Partner's Capital @18%

Asha Kanta Sharma
by Asha Kanta Sharma , Team Leader Finance , Opendoors Fintech Private Limited

The anser is 1. Interest on Partner's Capital @18%

Muhammad Akram Shahzad Mughal
by Muhammad Akram Shahzad Mughal , Assist. Manager Inventory & Warehouse , KahrPlast Co.

1. interest on partner capital

 

Reason

 

S34 Income Tax (Trading and Other Income) Act2005

You should disallow interest on partners' capital accounts. This interest is an allocation or distribution of profit to a proprietor.

If a partner advances money on loan to his firm for the purposes of the business, the interest payable is allowable as an interest expense to the business and is chargeable as interest on the partner.

 

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