From the following particulars, compute the taxable income for assessment year 2023-24 of a partnership firm engaged in retail trade: (i) Net profit of ₹3,95,000 arrived at after debit of interest on capitals of partners

Computation of Taxable Income of Partnership Firm (AY 2023-24): As per Section 40(b) of the Income-tax Act, 1961, in computing the income chargeable under the head 'Profits and gains of business or profession', any payment of interest, salary, bonus, commission, or remuneration to any partner of the firm shall not be deducted if it is not authorized by the partnership deed or if it exceeds the limits specified in the Act. For interest on capital, the maximum allowable deduction is 12% per annum. Particulars Amount (₹) Net Profit as per P&L Account 3,95,000 Add: Interest on Capital of Partners debited to P&L Account 4,90,000 Sub-total 8,85,000 Less: Allowable Interest as per Section 40(b) (12% of ₹10,00,000) (1,20,000) Taxable Income 7,65,000 Working Note: Interest on capital debited = ₹4,90,000 Total capital of partners = ₹10,00,000 Allowable interest @ 12% on capital = ₹10,00,000 x 12% = ₹1,20,000 Since the interest debited (₹4,90,000) exceeds the allowable interest (₹1,20,000), the excess interest (₹4,90,000 - ₹1,20,000 = ₹3,70,000) needs to be added back to the net profit. The allowable interest of ₹1,20,000 is then deducted.