Unsecured Loan
This query is : Resolved
17 February 2011
Why do people take and give unsecured loan? Is it some kind of an adjustment to save tax? Please explain.
CA PARAS BAFNA
(Expert)
17 February 2011
Unsecured loans are mainly taken for the purpose of meeting the requirement of funds in the business.
*
Payment of interest on such loans definitely results into tax benefits to the borrower, but the interest out go is a bigger expenditure than the small tax savings.
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Some times unsecured loans are available interest free, on which due to relationship, interest is not payable at all.
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If funds are not required nobody will take Unsecured Loans.
*
Salaried persons are, generally, not getting any benefit for interest paid on such loans.
*
So borrowings are always need based.
*
In case of fictitious borrowings, tax saving aspect may fail when its genuineness can not be proved by the assessee.
*
Payment of interest on such loans definitely results into tax benefits to the borrower, but the interest out go is a bigger expenditure than the small tax savings.
*
Some times unsecured loans are available interest free, on which due to relationship, interest is not payable at all.
*
If funds are not required nobody will take Unsecured Loans.
*
Salaried persons are, generally, not getting any benefit for interest paid on such loans.
*
So borrowings are always need based.
*
In case of fictitious borrowings, tax saving aspect may fail when its genuineness can not be proved by the assessee.
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