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Borrowing money from group company

KUNAL BAJAJ (Financial Analyst) (74 Points)

03 February 2016

My Company want to raise loan from Company in Singapore(Directors of both companies are same), What are the Companies Act , Income Tax and FEMA requirements and how we can raise without tax litigations or Corporate Litigations?

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J. Manivannan (Advocate & IP) (242 Points)
Replied 03 February 2016

According to FEMA, your proposed transaction will be come under External Commercial Borrowings (ECB), your Overseas Company cannot make loan to Indian Company unless it is 25% holding shareholder of Indian company. Even if you comply with this provision, there are some restrictions on utilization of loan funds and minimum maturity period are triggered. Better Overseas Company can make investment in either equity or preference shares of Indian company so as to enable you to use the funds for working capital requirements and other general corporate purposes without any restrictions. The Tax will be applicable only on when you paid dividend on those shares.

J. Manivannan

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