Manager - Finance & Accounts
58312 Points
Joined June 2010
Hi Kollipara! Regarding your question on loan from proprietary name to individual under the Income Tax Act:
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A proprietary concern and the individual proprietor are one and the same person legally.
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So, any loan taken by the individual from his own proprietary firm is essentially a transaction within the same entity for income tax purposes.
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Therefore, no separate "loan" can be recognized from the proprietary firm to the individual because they are not distinct legal entities.
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Cash loan shown from proprietary firm to the individual will not be considered as an external loan under Income Tax Act.
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However, if the concern is maintained separately and the individual takes money from it, it will be treated as capital withdrawal or drawings, not a loan.
In short: Loan from own proprietary concern to self is not a valid loan under IT Act; it’s treated as drawings or capital withdrawal.