Interest on unsecured loan

I hope both are Indian companies and hence no applicability of transfer pricing guidelines and even domestic transfer pricing guidelines as your case may not cross the limit specified for it. Apart from these the applicable sections which i can imagine is 372A of the companies act and 40A(2)(b)of the income tax act. According to 372A interest rate shall not be lower than the prevailing bank rate and hence thats the minimum rate to be taken. While 40A(2)(b) holds that the A.O is at the discretion of disallowance of any excessive or unreasonable expenditure made by the assessee to the parties as given in the section. So he might or might not disallow based on his discretion. Hence best is to take the prevailing bank rates prescribed by RBI Act.

 pl refer latest case