20 December 2010
Mr. X wants to start a Sole Proprietary business of Electronics (DVD Players), for that he approaches the bank for a loan and the bank asks for a Project Report. He has zero capital from his own pocket. He takes a loan in his own name and introduces the same into his business, whether the Interest paid on such loan will be an allowable expense while computing his business income?
Secondly, Can he start the business by showing in the Balance Sheet the loan as secured loan and capital as Nil (As he he has no money of his own.)
21 December 2010
Yes. You can claim interest on loan as expenditure.You can show the bank loan under secured loan if it is taken by giving any property as security.
21 December 2010
No don't show loan in your business BS. Keep it out of your personal dealings. Because, the banker will refuse the project since the debt-equity ratio is infinite. Show the money you have borrowed for your capital as your own money. In the same way don't show interest. But pay from your personal funds or drawings. Nevertheless while filing IT returns, deduct this interest
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