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Vivek Palande (Student)     05 April 2011

Can any NRI Give loan to Pvt Ltd Company (its Urgent please)

Can any NRI (Who is not director of pvt ltd company) Gives loan to Pvt ltd Company. 

i wan to know the tax treatment  for NRI, if any Interest received by NRI on that loan.

and conditions or rules to be fulfill for given any loan to pvt ltd company by  NRI who is not director of company . 



 18 Replies

Jayashree S Iyer

Jayashree S Iyer (Company Secretary)     05 April 2011

Any amount received as a loan from any person other than a director or his relative or a member of a private limited company, would be treated as a "Deposit" attracting Section 58A of the Companies Act, 1956. Private Companies are prohibited from accepting deposits other than its members, directors or their relatives.

CA Sandeep Kumar

CA Sandeep Kumar (Audit Assistant)     05 April 2011

There seems to be difference in terms used in the act. ''Deposit'' as defined under section 58A need not be the same as used in section 3(1)(iii)(d), vice versa. Explanation given under section 58A for deposits start with  '' deposit for the purposes of this section means........'', therfore the term deposit as defined may be used only for purposes of section 58A. Whereas the term deposit includes all kinds of borrowings as defined u/s 58A, for purposes of section 3(1)(iii), deposit may need not include all other kinds of borrowings, i.e, loan, etc. As there a clear distinction betweem loan and deposit. (loan is repayable on demand, deposit is generally for a specified period, decided in few cases) 

therefore can it be argued that term deposit u/s 3(1)(iii) need not include loans and hence private company can take loans from NRI in above case??

(Source for above points: V S Datey, Corporate Laws)  

Jayshree ma'm please correct me if m wrong, i have no updates of case laws in this topic. 

Sudhir Garg

Sudhir Garg (Service)     05 April 2011

Dear Sunny

As per Deposit Rules, Depositor includes who has given loan to the company. It also specifies that it includes any amount borrowed by the company.

I dont think section 3 does not include loan.

Regards- Sudhir

CA Sandeep Kumar

CA Sandeep Kumar (Audit Assistant)     05 April 2011

ya but again, such rules are framed for the purposes of section 58A .. Will the same be made applicable to section 3 also??? 

In exercise of the powers conferred by section 58A, read with section 642, of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the Reserve Bank of India, hereby makes the following rules, namely .......................... this is how the rules start, so reiterate, there is no specific mention of private companies here too. Depost defined u/s 58A are for the purposes of that section alone and the rules made thereunder are for the purposes of section 58A. 

I may be wrong, please post your views along with case law, if any, on this topic. 

 

Santhosh Poojary

Santhosh Poojary (SIEMPRE AHÍ PARA TI)     06 April 2011

Originally posted by : Jayashree S Iyer

Any amount received as a loan from any person other than a director or his relative or a member of a private limited company, would be treated as a "Deposit" attracting Section 58A of the Companies Act, 1956. Private Companies are prohibited from accepting deposits other than its members, directors or their relatives.
periasamy

periasamy (DGM Finance)     22 June 2011

First the Pvt Ltd company issue a min shares to the NRI. and then the P ltd company can get unsecured loan from NRI member in foreign currency. Is it possible.


 

CA. Anuj Gupta

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA)     05 July 2011

Originally posted by : vivek Palande

Can any NRI (Who is not director of pvt ltd company) Gives loan to Pvt ltd Company. 

i wan to know the tax treatment  for NRI, if any Interest received by NRI on that loan.

and conditions or rules to be fulfill for given any loan to pvt ltd company by  NRI who is not director of company . 

No, The NRI can't give loan to Indian Compoany either in foreign currency or in rupees.

 

There is requirement of TDS @ 20.6% if the loan is in foreign curency otherwise 30.90%.

 

Besides the same is also restricted under Companies Act,1956

 

Anuj

0-9810106211

SkDash

SkDash (CS (Member) CWA (Final))     05 July 2011

Anuj- Can you pl clarify - "The same is also restricted under the Comapnies Act" and " the NRI Cant give loan to indian Co either in FC or in INR".

 

TDS requirement is OK.

CA. Anuj Gupta

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA)     06 July 2011

Loans from NRI's are covered under Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 and Foreign Exchange Management (Borrowing or Lending in Rupees) Regulations, 2000, which clearly prohibits borrowing from NRI's by COMPANIES  without RBI approval.

 

Regarding Companies Act the same has been answered by Jayashree.

 

Anuj

0-9810106211

2 Like
CA. Anuj Gupta

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA)     13 July 2011

Originally posted by : vivek Palande

Can any NRI (Who is not director of pvt ltd company) Gives loan to Pvt ltd Company. 

i wan to know the tax treatment  for NRI, if any Interest received by NRI on that loan.

and conditions or rules to be fulfill for given any loan to pvt ltd company by  NRI who is not director of company . 

No, The NRI can't give loan to Indian Company either in foreign currency or in rupees.

 

There is requirement of TDS @ 20.6% if the loan is in foreign curency otherwise 30.90%.

 

Besides the same is also restricted under Companies Act,1956

 

Anuj

0-9810106211

Vishal D Shah

Vishal D Shah (CA. FEMA & Tax Consultant)     03 May 2012

Anuj, What if NRI funds Indian company through its NRO account, which is ideally domestic money ??
vivek

vivek (ca)     10 June 2012

Company has recd. interest free loan of Rs.23 L  from Director's NRI relative in April 2008 on non repatriation basis. It  is still o/s.

What should be done at Company's end to regularise this transaction assuming that this loan will remain outstanding for next 3- 5 years.

CA Vivek

0910032567

vivek

vivek (ca)     10 June 2012

Further ,   RBI Notification in regard is as under:

Notification No.F.E.R.A.196/99 RB dated 30th March 1999

In pursuance of sub-section (1) of Section 9 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), Reserve Bank hereby permits -
(1)a proprietorship concern or a firm in India to accept rupee deposits on non-repatriation basis from Non-Residents of Indian nationality or origin (NRIs), and
(2)a company incorporated in India (including a non-banking finance company registered with Reserve Bank) to accept rupee deposits on repatriation or non-repatriation basis from Non-residents of Indian nationality or origin (NRIs) or Overseas Corporate Bodies (OCBs).
Provided that -
(A)In respect of deposits accepted on repatriation basis -N/A
(B)In respect of deposits accepted on non-repatriation basis by proprietorship concern or a firm or a company -
(a)the maturity period of deposits does not exceed three years;
(b)the rate of interest payable on deposits does not exceed the ceiling rate prescribed from time to time for payment of interest by a company under the Companies (Acceptance of Deposits) Rules, 1975;        
(c)if the amount of deposits is received by inward remittance through normal banking channels or by debit to the non-resident depositor's NRE/FCNR/NRO account with an authorised dealer in India, the payment of interest and repayment of deposit may be made by credit to the non-resident depositor's NRO or NRSR account maintained with an authorised dealer in India. If the amount of deposit is received by debit to the non-resident depositor's NRSR account, payment of interest and repayment of deposit shall be made by credit to NRSR account of the depositor.

Due to financial difficulties  the Company's is  unable  to repay within 3 years  and still it will take another  3- 5 years.So Does the Company have  to apply RBI for extention of maturity period?

CA. Anuj Gupta

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA)     11 June 2012

Dear Vivek,

The notification quoted by you pertains to FERA which has now been replaced by FEMA.

The provisions similar to FERA are applicable in FEMA also, but kindly see the words used in the regulations is 'Deposits" and not loans.

Also loan received in foreign currency is not allowed simplicitor, it is allowed only if qualifies as ECB under FEMA.

 

Anuj

femaquery @ gmail.com

 


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