loan to director

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CA Aditya Goel (Querist)

19 January 2010 i want to ask:

1. whether company can give loans and advances to director of the company? is it allowed as expense under income tax?
2. and while paying advance to the director shall TDS be also deducted?
3. advance given to director will be treated as loans and advances or company or will b treated as advance salary to director?
4. if it is treated as loans advances to director then can it be adjusted through director salary account?

i know lots of question i have ask together. but plz experts provide me with ur suggesions elaborate plz.

thankyou

Barun Kumar Ghosh

Barun Kumar Ghosh (Expert)

20 January 2010 Payment of loan or advance to any body cannot be allowed as deduction for computing income of the emploer compny.
If the company is a closely held comapny (i.e.private limited company or unlisted public limited company)and the director is a shareholder having 10% or more voting right, then under section 2(22)(e)the amount of loan or advance to the extent of accumulated profits of the company shall be deemed to be dividend. The company is not laible to dividend distribution tax. Therefore, the said individual shall not be entitled to exemptin underunder section 2(22)(e)However, if the advance given to shareholder is in the nature of trade advance, my view is that section 2(22)(e) is not applicable.

Ankur Garg

Ankur Garg (Expert)

20 January 2010 From the company law point of view kindly refer section 295 for loan to directors only with CG approval.

Approval by CG is mandatory before granting loan to director. Section 295 is very serious in nature.

Regards

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