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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Returns of various Entities excluding Companies

Esha is a member of an AOP with determinate shares. Her share in the AOP's income, computed under the Income-tax Act, 2025, is Rs 6,00,000, chargeable under the head Profits and gains of business or profession. She paid Rs 70,000 interest on money she borrowed to invest as capital in the AOP. What amount is chargeable in her hands from the AOP?

Rs 5,30,000 is chargeable. The interest of Rs 70,000 paid on money borrowed to invest in the AOP is deducted from her business-income share of Rs 6,00,000. Adding it, ignoring it, or deducting it twice would give the wrong figure.

  1. ARs 6,70,000
  2. BRs 6,00,000
  3. CRs 5,30,000Correct
  4. DRs 4,60,000

Explanation

Section 309(4) allows interest paid by a member on capital borrowed for investment in the AOP to be deducted from her share chargeable as business income. So 6,00,000 - 70,000 = Rs 5,30,000. Rs 6,70,000 adds the interest instead of deducting it, Rs 6,00,000 ignores it, and Rs 4,60,000 deducts it twice.

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