taxability of loan given to director?

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 November 2009 can any one tell me whether loan given to a director by a private company is taxable in the hands of director? plz also tell the section applicable .

thanks n regards

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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10 November 2009 SECATION 295 IS NOT APPLICABLE ON PRIVATE COMPANIES. loan given to a director by a private company or public company is NOT taxable in the hands of director.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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11 November 2009 Pl read section 2(22)(e) of the Income tax Act,1961.

haridhayalan

haridhayalan (Expert)
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11 November 2009 not taxable

Querist : Anonymous

Querist : Anonymous (Querist)

12 November 2009 what if the director is also a sharholder in the company with 9% shareholding

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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26 July 2025 The **taxability of a loan given to a director** depends on the **shareholding** and **nature of the company**. The relevant provision under the **Income Tax Act, 1961** is **Section 2(22)(e)** — **Deemed Dividend**.

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### 🔹 **Relevant Provision: Section 2(22)(e)**

This section **treats certain loans/advances given by a company to its shareholders as *deemed dividend* (i.e. taxable as income)**.

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### ✅ **Conditions for Section 2(22)(e) to apply:**

1. The company is a **closely held company** (i.e. not a company in which the public are substantially interested).
2. Loan/advance is given to:

* A **shareholder** holding **≥10% voting power**, **or**
* A **concern (firm, HUF, company)** in which such shareholder is substantially interested.
3. The company has **accumulated profits** at the time of giving the loan.

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### ❌ **If director holds only 9%**:

* Since **shareholding is less than 10%**, **Section 2(22)(e) will *not* apply**.
* Hence, **loan is *not taxable* in the hands of the director**, provided:

* He is **not holding ≥10%** voting power.
* The company is not giving it to a concern where the director is **indirectly a 10% shareholder**.

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### 🔹 Other Points:

* The **loan may still attract scrutiny under Companies Act**, especially **Section 185** of the Companies Act, 2013 (prohibition on loans to directors), but this is **regulatory**, not tax-related.
* If the loan is given in the **normal course of business** and the company is in the business of lending, **Section 2(22)(e)** also **does not apply**, even if conditions are met.

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### 📝 Summary:

| Situation | Taxable under Sec 2(22)(e)? |
| -------------------------------------- | ------------------------------ |
| Director holds **9% shares** | ❌ No |
| Director holds **≥10% shares** | ✅ Yes, if other conditions met |
| Loan to director **not a shareholder** | ❌ No |
| Loan in **normal lending business** | ❌ No, even if ≥10% holding |

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Let me know if you want to see implications under the Companies Act or draft language for board resolutions.

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