Tax on money given by american friend

This query is : Resolved

Jay Patel (Querist)
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29 March 2013 One of my US based friend (not NRI or PIO, but proper American citizen) is willing to lend me some money for my business. I can repay him back as and when I can.

I want to know would be the taxability aspects in this.

Would be grateful if someone can guide me on this.

Thanks..

srinivas reddy

srinivas reddy (Expert)
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30 March 2013 that income will not covered under any head

Jay Patel

Jay Patel (Querist)
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30 March 2013 If it doesnt fall under any head, then does it mean I dont have to pay any tax on it?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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26 July 2025 Here’s the clear view on money given by your American friend as a **loan** for your business:

### Key points:

1. **Loan amount received is not income**:
When your friend lends you money (i.e., you have a repayment obligation), this **is not taxable income** in your hands. It’s a liability, not income.

2. **No tax on loan received**:
Since it’s a loan, it doesn’t fall under any taxable head like “Income from Business” or “Capital Gains”. So, you **do not have to pay tax on the amount received**.

3. **Interest paid on loan**:
If you pay interest to your friend, that interest may be taxable in the US (for your friend), and you may have a **TDS (Tax Deducted at Source)** obligation in India under Section 195 (if applicable). You should check the India-US Double Tax Avoidance Agreement (DTAA) for rates and provisions.

4. **Documentation**:
Maintain proper loan agreement and evidence of funds transfer to establish it’s a loan.

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### Summary:

* **No tax on receiving loan money.**
* Tax issues may arise on **interest payments** to your friend (TDS, etc).
* Maintain proper documentation to avoid future disputes.

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