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

Interest Expense Deductibility - apportion OD interest; personal use portion is disallowed against interest income. Interest paid on an OD account used both for lending and for personal expenses cannot be netted against interest earned. The deductible interest must exclude the portion attributable to personal expenditure; therefore a computation is required to apportion total OD interest between personal use (disallowable) and income generating use (potentially deductible).