LIVE GST Certification Course by CA Arun Chhajer begins 21st April. Register Now!!

Interest deduction

Shravan Talwar (3 Points)

29 April 2017

whether interest paid on money borrowed for payment of dividend is allowed as a business expense.

Reply
Follow
Share

4 Replies

(Guest)

Money borrowed for payment of dividend!

I suppose that you are not asking it in context of a company, because that is not allowed to them.

And for other entities: it's not related to business, hence not allowed.

Sivaiah Ganga (68 Points)
Replied 29 April 2017

Divided is exempt in the hands of receipient unless he receives more than 10 lakhs during the year.... Hence interest is not allowable as per sec 14...please check sec 14 of income tax Act....

Shravan Talwar (3 Points)
Replied 02 May 2017

Thank you Manish for your reply, however, there is a possibility that the company has earned profits but only due to non-availability of cash they resort to borrowing and it is used for business purposes the same should be allowed as business expense, there is also a Supreme Court ruling on this wherein it was allowed as business expense. Please clarify.

(Guest)

Yes, that could be.

Sorry I have no clue about supreme court ruling; I couldn't find it online too.

Income tax act says that the loan should be for business purpose. I found this: https://www.livemint.com/Money/TQa9YzKIH9BojEimOQFF9L/Top-Indian-firms-take-on-more-debt-to-pay-dividends.H T M L, that many companies do it. It is quite common, so may be this constitute business purpose; following constant dividend policy.

As per my understanding the interest should be allowed. If you remember the ruling details, then please share.

Thanks