Loan without interest and effect under income tax act

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Sarat Kumar Sahoo (Querist)
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03 April 2014 Query: Mr. X is an Individual want to give Loan to Mr. Y also an Individual, amounting to Rs. 1 Crore/any amount may be for long/ short term.
1. It is possible to give loan without Interest?
2. If loan given at interest, What should be the minimum interest rate?
3. If there is no interest charged on loan then what will be the effect under income tax act?

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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03 April 2014 1.for income tax purpose may tax the notional int.

2.there is no rule for min rates.

3.then notional int rate as decided by ao which is prevailing in market will be applied.

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C.A. Mayur J. Raiyani

C.A. Mayur J. Raiyani (Expert)
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03 April 2014 1. yes it is possible to give interest free loan but refer point no. 3
2. ideal interest rate should be in line with SBI lending rate, however higher rate can be kept since loan is unsecured but should not be too high compared to sbi rate.
3. if interest on loan is not charged then you have to think from Mr. Y's point of view. Because, if Mr. Y is using borrowed fund for his own business and he is paying interest, then logically he cannot give interest free loan to anybody. so at that time whatever interest is claimed by him may be disallowed.
This is only if you want to take care of others, otherwise you can take interest free loan.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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04 April 2014 there is no rule anywhere specifically mentions that rate shall be taken at sbi's rate...when interest free loan is given.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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04 April 2014 there is no rule anywhere specifically mentions that rate shall be taken at sbi's rate...when interest free loan is given.

C.A. Mayur J. Raiyani

C.A. Mayur J. Raiyani (Expert)
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04 April 2014 Tushar, i have not adhered to take SBI rate, you are right that there is no specification from IT laws. But for justification purpose it becomes strong on our part for interest rate if assessment would carry out by ITD. And for mentioning answer in respect of interest rate, i have answered on query no. 2 of Mr. Sahoo.

Sarat Kumar Sahoo

Sarat Kumar Sahoo (Querist)
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08 April 2014 1.If the interest rate is between 4 to 6% or nil. What will be effect under income tax scrutiny?

2.If the loan given to relative or non relative for personal use or business. What will be effect under income tax scrutiny?

3.If the file comes under scrutiny then ITO will charge minimum 9 to 13% as interest income. Penalty u/s 271(1)(c)(d) 100 or 300%, interest will be applicable.Please comment

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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09 April 2014 1. AO will decide taking into consideration factors like amount, purpose, rate prevailing for similar transaction,frequency and past history of lender and reciever.

2.the source will be determined and acordingly ao will decide and moreover the application of money by reciever may be ascertained.

3.that AO will determine as per point 1 ans.

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