Interest Income

[RAHUL MALHOTRA]

Hi

My query is related to Interest Income.

One of my HUF client is having OD account from which he use to lend money to his proprietary firm, his relatives and get interest which is more than that he pay on his OD account and the same account he also used to pay his personal expenses like LIC, RD etc. Now my concern is the Od interest that he pays should be deducted from interest that he received from various parties but how much interest???? Because he is using that Od account for both personal and for lending. We cant say that whole interest is related to personal or for lending. What proportion basis shall I take to distribute the interest amt. Please reply.

 

Regards

Rahul

[CAGOPALJI AGRAWAL]

First interest earned and paid can not be net off. Secondly, the computation of interest paid on account of personal expenses from borrowed finds have to be computed and deducted from total interest paid.

[RAHUL MALHOTRA]

Hello Sir

Thanks for your response. But if I am showing interest earned as my income than why the expense that I incurred to earn such income is disallowable?

I am availing OD limit to lend the amount and earning interest and when I am paying interest to bank to avail such limit it is disallowable??Why?

AI Summary

Guidance on Allocating Interest for HUF Overdraft Accounts: Separate Personal and Lending Interest for Accurate Deductions. A user inquired about the treatment of interest income and expenses for a Hindu Undivided Family (HUF) client with an overdraft (OD) account. The account is used both for lending money to a proprietary firm and relatives, and for personal expenses. The user sought guidance on how to proportionally allocate the interest paid on the OD account between personal and lending purposes. A respondent clarified that interest earned and paid cannot be netted off and that interest paid for personal expenses should be computed separately and deducted from the total interest paid. The user questioned the disallowance of expenses incurred to earn income.