Loan to capital treatment

Dear Sir/mam 

 

If in case a proprietor/shareholder/partner of the business taken loan and invest such amount as capital.

The interest which is chargeable on such how the tratment of such in income tax.

Can it allowed as deduction from dividend in other sources or allowed as business expenditure?

 

Replies (3)
Quick Summary
This discussion explores the income tax treatment of loans taken by proprietors, shareholders, or partners and subsequently invested as capital. For proprietary concerns, the interest may be allowed as a business expense. For partners and shareholders, adjustments can be made through increased remuneration, though it cannot be directly offset against dividends. Interest expense is generally allowable against dividend income or income from mutual funds, capped at 20% under Section 57 of the Income Tax Act.

Allowed as business expense in case of proprietary concern. for partner and shareholder you can adjust the amount by way of increase in remuneration. In either case it can't be allowed as dividend

Interest expense allowed against dividend income or income in respect of units of a mutual fund subject to max. 20% of such income as per sec 57 of income tax act.

A loan may or may not be a current asset depending on a few conditions. A current asset is any asset that will provide an economic value for or within one year. If a party takes out a loan, they receive cash, which is a current asset, but the loan amount is also added as a liability on the balance sheet.

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