Income tax rules on giving loan

Hi,

A close friend of mine requires a 50 lakh loan for his business. I have decided after much thought to help with his venture as he requires to the money to expand his product line . 

On my part, I have decided to lend the money from my Overdraft account. Even though its a friend , the agreement is that interest will be paid. So my questions is 

- What is the Income Tax Rules on maximum interest that can be levied contractually? I was thinking 15% 

- My OD interest is 12% so I assume I only pay tax on the 3% margin ?

- I worked as a salaried proffesional, so I dont produce a balance sheet, will I need to maintain any other documentation 

- For the Loan I would make an agreeement and pay the amount to him via RTGS. The Interest would be paid back every 3 months , which will go towards paying my OD interest. The 3% "profit" will be clubbed to my income head and taxed accordingly . 

Let me know if this is correct or if need to maintain any other documentation

Please help me with your response

 

Regards

Replies (1)

You can declare the Interest amount received from your friend as Income from other sources  as long as you are filing ITR-1 as salaried person. And make sure that your friend keeps the said 50L amt. as unsecured loan in his balance sheet.

The said agreement should suffice provided taken on proper stamp duty in your state.

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