Waiver of loan

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Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2012 Whether the one time settlement of loan from a bank is a capital receipt or a revenue receipt for the company? Please suggest, its urgent.

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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21 December 2012 Any loan always capital receipt to the receiver and capital payment to the payer. As well as interest on loan is revenue nature for both the parties as well as if any discounts then it is revenue nature for both the parties.

In your case in case the payment liability is wavied(i.e discounted) then the portion of waving amount is revenue nature and credit or debit to P&L account in the books of received and payer.

For any more clarification please write question clearly.

OM SAI SRI SAI JAI JAI SAI

Querist : Anonymous

Querist : Anonymous (Querist)

22 December 2012 Sir, it is like this a company has taken two loans - one for acquiring assets and the second one as working capital loan. Now the company suffered huge losses during the past so many years and was unable to pay the bank loan. It entered into One Time Settlement with the bank and has to pay 40% of the loan taken as full & final payment.

The question is whether this one time settlement or 60% waiver in both the types of loan is a capital receipt or revenue receipt. For the loan taken for purpose of assets, there are case laws that it would be a capital receipt. For the waiver of working capital loan, there are case laws which say that waiver of such loan is revenue in nature & taxable. But the thing I wish to understand is that the when the company took the loan, it was of capital nature shown as secured loan in balance sheet. On writing off such loan, does the character changes or would it still be capital?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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22 December 2012 Wavier of loan means giving discount in the payment due/payable. So the wavier portion should be revenue nature and taxable in the year of wavier. So in your case the 60% of loan which is wavied by the bank is income to you i.e discount so it is taxable. For your best example compare the case like creditors the creditors shall leave some amount of due(i.e discount) and we consider such discount amount as income.

I shall told you the wavier portion is should be revenue nature.

OM SAI SRI SAI JAI JAI SAI

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Querist : Anonymous

Querist : Anonymous (Querist)

22 December 2012 Thanks a lot Sir.

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