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Tax implication on company giving loan to its own director to buy its share

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Laraib Alam

Articled Assistant

21 Points Posted on 29 November 2019

What would be the implications related to tax when a private company gives loan to its director and the director uses the loan money to buy the shares of the same company (more than 10%).

Will it be considered as deemed dividend under Section 2(22)(e). Please also tell if any other relevant section applies

Replies (2)

rama krishnan

5751 Points Posted on 01 December 2019

If the director doesn't hold 10% of shares at the time of loan advanced by the company, then there's no application of section 2(22)(e)

Kapadia Pravin

10683 Points Posted on 02 December 2019

No, a private limited company cannot give loan to directors.

According to Section 185 of Companies Act, no company can directly or indirectly provide any loan to its director or to any other individual with whom the director is related to or is interested in.

Under the amendment in section 185, any private company where it has common directors can give inter-company loans so long as it is in the business interest.