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Interest on partner capital allowable under Section 40(b) up to:
A9%
B18%
C12% per annum (per partnership deed)
DNo interest (per relevant Section)
Answer & Solution
Correct answer: C. 12% per annum (per partnership deed)
1. Section 40(b) permits deduction of interest to partners if authorized by partnership deed.
2. Maximum rate is 12% per annum simple interest.
3. Excess over 12% disallowed in firm; not taxable in partner's hands either.
_Source: ICAI BoS CA Final Paper 7, Ch 3 "Profits and Gains of Business or Profession"_
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