Inter corporate deposits
This query is : Resolved
28 April 2026
Sir
Both companies are private limited. directors are same. if one company want to give its excess fund to another comany.is there any problem .kindly advice.
Both companies are private limited. directors are same. if one company want to give its excess fund to another comany.is there any problem .kindly advice.
28 April 2026
Yes, there are compliance requirements and potential problems if not followed properly, but it is legally permissible for one private limited company to give its excess funds to another private limited company (even with the same directors) if done through proper channels. Here's what you need to know:
Key Legal Requirements
Section 186 of Companies Act, 2013 (Main Restriction)
A company giving a loan/advance to another company must comply with Section 186
Limits: Cannot exceed 60% of paid-up share capital + free reserves + securities premium OR 100% of free reserves + securities premium (whichever is higher)
Board Resolution: Required for the transaction
Shareholder Approval: Needed via special resolution if the amount exceeds the Section 186 limits
Key Legal Requirements
Section 186 of Companies Act, 2013 (Main Restriction)
A company giving a loan/advance to another company must comply with Section 186
Limits: Cannot exceed 60% of paid-up share capital + free reserves + securities premium OR 100% of free reserves + securities premium (whichever is higher)
Board Resolution: Required for the transaction
Shareholder Approval: Needed via special resolution if the amount exceeds the Section 186 limits
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28 April 2026
Related Party Transaction (Section 188)
Since both companies have the same directors, this is a related party transaction:
Board approval is mandatory
Directors with interest must disclose and recuse from voting
If transaction value exceeds prescribed limits, shareholder approval via special resolution is required.
Since both companies have the same directors, this is a related party transaction:
Board approval is mandatory
Directors with interest must disclose and recuse from voting
If transaction value exceeds prescribed limits, shareholder approval via special resolution is required.
28 April 2026
Check Articles of Association (AoA)
Review both companies' AoA for any restrictions on loans/inter-company fund transfers
Tax Implications
Interest rate: Must be at arm's length (market rate) to avoid tax issues
If given as interest-free loan or below market rate, IT Department may impute interest income
Section 2(22)(e): Loans to shareholders/directors can be deemed dividend (but inter-company loans to another company typically don't fall here)
The borrowing company must deduct TDS at 10% on the interest paid to the lending company.
Arm's Length Price: Tax authorities expect the transaction to be at a market-linked interest rate to avoid disallowance of interest expenses.
Review both companies' AoA for any restrictions on loans/inter-company fund transfers
Tax Implications
Interest rate: Must be at arm's length (market rate) to avoid tax issues
If given as interest-free loan or below market rate, IT Department may impute interest income
Section 2(22)(e): Loans to shareholders/directors can be deemed dividend (but inter-company loans to another company typically don't fall here)
The borrowing company must deduct TDS at 10% on the interest paid to the lending company.
Arm's Length Price: Tax authorities expect the transaction to be at a market-linked interest rate to avoid disallowance of interest expenses.
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