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Interest free loan from Shareholders

Dhiraj Bagri (Manager - Finance & Accounts) (174 Points)

20 April 2011

Dear Members,

A company "ABC" is shareholde of company "XYZ". Can "ABC" give interest free loan to company "XYZ".

As far as I think from income tax point of view we can not give.

Need clarification.

Thanking you

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5 Replies

Rachit (Ca-Final Article.) (565 Points)
Replied 20 April 2011

yup sub . to condition that how much ABC is holding in XYZ ltd............

It Cannot give if its holding or any of its director whose holding in it is 25 % has holding more than 10% in the XYZ ltd.

Dhiraj Bagri (Manager - Finance & Accounts) (174 Points)
Replied 21 April 2011

Thanks Rachit. I would like to further provide the following information : -

1). ABC is a Limited company and XYZ is Pvt Ltd company.

2). ABC is holding 10% in XYZ.

3). No director of ABC is holding any share in XYZ.

Could you plz further elaborate "It Cannot give if its holding or any of its director whose holding in it is 25 % has holding more than 10% in the XYZ ltd."

And also if there is any section or case law which I can refer to for the above purpose will be of immense help for me.

Thanking you

Rachit (Ca-Final Article.) (565 Points)
Replied 21 April 2011

i hope the following link may help you in sorting out your query..............................................

/articles/details.asp?mod_id=6121#leave_comment

But this provision is applicable for private co. only have no info in case of public co.

Dhiraj Bagri (Manager - Finance & Accounts) (174 Points)
Replied 21 April 2011

This link is related to deemed dividend.

I am asking from the view point of Income tax. If a company who is a shareholder is providing interest free loan then Is there any chance of adding back of interest income (notional ) on the loan given to the company by shareholder?

Could u plz elaborate a bit the provision related to private limited company and in case if there is any case law or section which can help me for the same.

Thanking you

ABHISEK TOSNIWAL (CA in Practice) (638 Points)
Replied 17 May 2011

SHAREHOLDERS,DIRECTORS AND RELATIVES OF BOTH OF THEM CAN GIVE INTEREST FREE LOAN TO A PVT. LTD. CO. IN THIS CASE NO NOTIONAL INTEREST IS ADDED BACK. THUS INTEREST FREE LOAN CAN BE TAKEN FOR CARRYING ON THE BUSINESS OF A PVT. LTD. CO. FROM SHAREHOLDERS ,DIRECTORS AND THEIR RELATIVES.

REGARDS

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