Income Tax on payback of Loan Principal

Tax queries 428 views 2 replies

Guest

Hi,

Over the period of time, in 3 years, a friend had borrowed from me a sum of Rs 3.5 Lakhs for his struggling business. The money was given in Cash to him for his expenses. Now he wants to return all that money either in cash or in Account transfer. The amount that I gave was my earning and I had paid all my due income tax on that. If my friend transfer that 3.5L amount in my bank account will that be treated as my income and pay tax on it? What proof should I maintain so that if in future the IT department asks me about this money, I can provide the justification? Thanks in advance....

Replies (2)

Tribhuvan Aditya Singh

Student as well as Self-employed

3710 Points Joined September 2007

you can receive 3.5lakhs directly in your bank account. you just need to write a formal agreement of repayment of loan on non-judicial stamp paper stating that the amount of 3.5 lakhs have been received on account of repayment of loan taken on various dates during past three years and also enclose an annexure showing details of loan. while you prepare this annexure, keep in mind that amt. of loan is not given in excess 20000 in cash on any day.

Mihir

Wealth Manager

5293 Points Joined December 2008

If possible, take it in cash and if not possible then prepare a loan agreement with him stating terms and conditions. If the ITO demands an explanation, then you may furnish this document to safeguard yourself. But taking back in cash is a better option.