Loan to HUF from personal savings

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This query is : Resolved

Ashu (Querist)

07 April 2023 Planning to transfer post tax personal savings as loan(zero interest and no time limit) every 3 months to HUF account for the purpose of paying instalments of an under construction property in which HUF will be co-owner.
So it is like giving loan every 3 months.
The HUF will pay back the loan once it starts earning which will be spread across multiple financial years.
1. Is it ok to give such loan without any documentation?
2. Under which head this amount should be mentioned while filing ITR for HUF?
3. Are bank statements enough to record credit/debit(pay back) transactions for loan?
Thanks & regards

CA Sanat Pyne

CA Sanat Pyne (Expert)

07 April 2023 1. It is not advisable to give any loan without documentation, even if it is to a family member or HUF. It is essential to have a written agreement or contract that outlines the terms and conditions of the loan, such as the loan amount, interest rate, repayment period, and consequences of default. This documentation will serve as evidence of the loan and can protect both parties in case of any disputes or misunderstandings in the future.
2. The loan amount received by the HUF should be recorded as "Capital Receipts" in the HUF's balance sheet. The repayment of the loan should be recorded as "Capital Expenditure" in the HUF's balance sheet. The interest-free loan amount will not be taxable as income for the HUF as there is no interest component involved.
3. While bank statements can serve as evidence of credit and debit transactions, it is still advisable to maintain a proper record of loan transactions, including the loan agreement, repayment schedule, and payment receipts. This record can help avoid any confusion or disputes in the future and make it easier to reconcile the loan accounts.

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