Under the Income-tax Act, 2025, interest on capital paid by a firm to its partners in accordance with…

Under section 35(e)(iv) of the Income-tax Act, 2025 (formerly s.40(b)(iv) of the Income-tax Act, 1961), interest paid by a firm assessable as such to any partner, as authorised by the partnership deed, is not deductible to the extent it exceeds 12% simple interest per annum, so interest up to 12% per annum is allowed in computing the firm's business income. Interest that is not authorised by the partnership deed, or that relates to a period before the date of the deed, is disallowed altogether (section 35(e)(ii)). Rates of 6%, 15% and 18% are not the statutory ceiling.