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Tax implications

Manikanta (Accounts Manager) (9 Points)

25 May 2017

My friend who was in USA from last three years and earning money as salary, as per my request he was agreed to give a loan of Rs.30L at interest, please clarify me how the transaction should happen and the tax implication on the same?

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7 Replies

(Guest)

interest tds is applicable

if cross the basic exemption limit income tax also applicable

Studentsca (CA Practice ) (3577 Points)
Replied 25 May 2017

Interest income earned would be taxable as Income from Other Sources. If interest income exceeds Rs. 2.50 lakhs he has to file return of income.

Manikanta (Accounts Manager) (9 Points)
Replied 25 May 2017

I would like know firstly, how the amount to be transfered to my account?

From his saving's account to my savings account directly ? / from his foreign account to my account directly?

while remmiting that much amount don't we have any tax implications?

I will pay the interest at 10% per annum.

I am sending him a loan agreemnt signed by me.

Manikanta (Accounts Manager) (9 Points)
Replied 25 May 2017

Should i need to decut TDS on the interest amount paid ? as of my knoledge if interest exceeds Rs.5000 need to deduct TDS as per 194 A..

My friend has to file income tax return if he was getting interest amount exceeds 2.5 lakhs..

correct me.!

Studentsca (CA Practice ) (3577 Points)
Replied 25 May 2017

If he has that amount in his savings account you can transfer it from there to your account. You need to deduct TDS @ 10% if you are planning to claim interest paid as an expense.

Manikanta (Accounts Manager) (9 Points)
Replied 25 May 2017

The TDS has to deduct on monthly basis/ when the payment made..?

Abhinav (CA) (397 Points)
Replied 25 May 2017

This transaction will be impacted not only by Income Tax Act but FEMA as well.

For FEMA implications, you can read my post to get more clarity: FEMA Implications on NRI Loan Transactions: A Scenario-wise Analysis

As regards Income Tax Act, NR friend will be taxed in India on the interest component. If interest (together with his other income in India) exceeds INR 2.50 lacs, he will have to file a tax return in India. Even otherwise, to claim a credit of TDS deducted by you on the interest, he will have to file a tax return in India.

You need to deduct TDS @ 30.90% u/s 195 on the interest component irrespective of the amount of interest - deposit TDS in ITNS 281 and file a TDS return in Form 27Q.

Your friend will also have to include this interest in his USA tax return, and corresponding issues of claiming a foreign tax credit may arise, if he needs to pay tax in India.

You can collect the amount in your savings account, from his account. This amount is not taxable, provided it is a loan and not a gift. Interest on this amount is taxable to your NRI friend.

Thanks!