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Query on lending money to a friend

Prashant (test lead) (25 Points)

04 July 2011

If I have an annual income of 25 lakhs in Malaysia for which I am paying taxes I don't have to pay taxes in India. But if I lend some money to a friend of mine in India say around 18 lakhs(1.5 lakhs monthly) what documentation I need to get from him to make sure I am safe legally(not as collateral but from IT sleuths)?

Also if I show an interest rate which is very low can I do it?

If I use for 15H for TDS from him what interest will incur a income tax?

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10 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 04 July 2011

Income from the money lent by you to your friend in india would be taxable in India as per section 9(1)(v).

There is no such requirement of minimum interest or maximum interest in Income tax. You can give the money to your friend without interest also.

But if you are collecting some interest then it would be best to show what you have collected as income.

Documentation part i am not that sure but it should not be a big problem for you.

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CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 04 July 2011

Originally posted by : Prashant
	If I have an annual income of 25 lakhs in Malaysia for which I am paying taxes I don't have to pay taxes in India. But if I lend some money to a friend of mine in India say around 18 lakhs(1.5 lakhs monthly) what documentation I need to get from him to make sure I am safe legally(not as collateral but from IT sleuths)? Also if I show an interest rate which is very low can I do it? If I use for 15H for TDS from him what interest will incur a income tax?

You can charge interest at rate which makes sure that your income in India becomes below 1.80 Lakhs.

Also then you can give form 15H for the same.

Anuj

0-9810106211

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Prashant (test lead) (25 Points)
Replied 04 July 2011

Thanks Praveen and Anuj for your prompt replies.

One more query, a plain paper loan agreement is enough or I need to make a stamp paper agreement of it?

Also can I make a account transfer using internet banking or I need to give my friend a account payee cheque while lending money.

Thanks

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 04 July 2011

It is better to make aggrement on a stamp paper and lend it via cheque.

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CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 04 July 2011

Stamp paper agreement shall be better in any case.

Also no harm in making transfer using internet banking.

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Raja (Sotware engineer) (22 Points)
Replied 27 February 2012

Hi Anuj,

Leanding money in India and charging interest on it is considered as business, right? If so, is NRI eligible to do business in India thought this path?

Thanks!

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 27 February 2012

Dear Raja,

Lending of money on regular basis can be considered as business but one or two transactions shall not constitute business.

Loan from NRI's is regulated by FEMA and the regulations thereunder sgould be adhered to before giving loan .

Anuj

91-9810106211

femaquery @ gmail.com

2 Like

Raja (Sotware engineer) (22 Points)
Replied 27 February 2012

Dear Anuj,

Thank you so much for clarification.

I have another doubt. Not sure whether this is the right place to ask or not. Usually NRI's transfer money from their foreign bank directly to the parents Bank accounts in India.

How Indian Income tax department will track these transactions?

Will these money be treated as gift?

Do the parents need to report these money to Income tax?

Can parents use this money for their business purpose?

Thanks a ton for clarifying these questions.

Regards, -Raja

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 27 February 2012

Raja,

There are clearly defined rules in FEMA and income tax for the same.

Anuj

+91-9810106211

femaquery @ gmail.com

Maryrose Fruge (staff) (25 Points)
Replied 18 August 2014

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