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Right procedure to take loan from friend

erdeep (engineer) (309 Points)

13 June 2015

Respected experts ,

I requested to one of my best friend to lend me some money approx 1.5 lacs i will return it in monthly basis in installments ( interest free ) . He is not interested to take any extra amount .

If he transfer that amount in my saving bank account then will IT officer consider as my income and will affect my itr at the end of year or it will not be the part of my income ?

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3 Replies

CA Salman Ansari (Salman Ansari & Assoc.) (247 Points)
Replied 13 June 2015

Hello Erdeep,

Section 269SS states that 'a person should not accept or take any loan /deposit from any other person in a mode otherwise than by way of account payee cheque or account payee bank draft if the amount of loan to be accepted is Rs 20,000/- or more.

Since you're borrowing 1.5 lacs, you're clearly past the threshold. In my opinion, transfer of the loan amount in saving account does not satisfy conditions of Section 269SS.

To avoid any problem in future you should collect the following document of the lander be on safe side otherwise the ITO will make the addition u/s 68
1) Copy of the Bank Statement
2) Copy of confirmation with PAN No.
3) Copy of PAN Card.
4) Copy of Income Tax Return
5) Copy of Balance Sheet

Hope this was of help.

Ansari Salman

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erdeep (engineer) (309 Points)
Replied 26 June 2015

@ ansari sar :: My friend is transfering that amount through rtgs . Will i also have to request for his pan card and itr copy ??

If i return the money in installment ( less tahn 20,000 per month ) then will it be right ?

Z ( ) (2965 Points)
Replied 27 June 2015

Payment via ECS is also allowed. 20,000 Limit is not per month but in aggregate. Citing relevant provisions for better understanding. To be on safe side you can have a loan agreement with nil interest and PAN

[I doubt lender will be willing to give his ITR or bank statement more so when he is helping you]

Important thing is that you should be in position to prove that this money does not belongs to you and is a loan , which should be satisfied on production of loan agreement and PAN of lender

269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),

is twenty thousand rupees or more:

269T. No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account if—

(a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or

(c).......

is twenty thousand rupees or more: