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conversion of loan into equity capital.

This query is : Resolved 

07 September 2010

please resolved the below mentioned query.

A pvt company is having equity share capital of 100,000/- Rs. at the beginning of the F.y & 500,000/- Rs. as an unsecured loan from the directors. During the year company increases the paid capital to 20,00,000/- Rs. in which 500000/- Rs. of unsecured Loan is Converted into Equity share Capital.
whether the following conversion will attract the provision of 269T Of Income Tax Act.
Please also specify whether any separate disclosure is required under companies act.
if possible along with the format.

Waiting for your Thankful Comments.

07 September 2010

The restriction imposed by Sec. 269T is on the repayment of loan or deposit otherwise than by an account payee chq. , if the amt. of loan or deposit is Rs. 20,000/- or more. IN the instant case, the deposit is converted into share capital and hence, sec. 269T will not be attracted.

rvsekar2000 (Expert)
25 October 2010


There is no restriction either under IT Act or under Companies Act.

But , it is advisable to get a confirmation letter from the loan provider to treat it as share application money.

Share application form can also be signed by the loan provider to company.



Pl do visit my blogs :

Neha Jain (Expert)
23 June 2012

There is no bar for conversion of loan into share capital. You are required to enter into agreement with lender for conversion of loan into capital.

Call a Board meeting and pass a resolution and file Form-2 and form 3 within 30 days.


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