If unsecured loans received in a loss making company (which is not capable of repayment anyway) is written off as no longer repayable, will the written off amount be taxable under income tax or will it be a capital item and not taxable? Any case law available?
Thanks for reply. As u say it is taxable if it s unilateral write off. What if writing off is done with mutual agreement of lender and loanee under an agreement between them? still it wil be taxable i hands of loanee?
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Writing off unsecured loans taxable?
Replies (9)
Co giving the loan can claim it as a deduction u/s 36 of ITax Act -on writing it off.
and the co. whose liability is vanished will have to treat it as Income u/s 41 on account of unilateral write off by the loan giving co.
and the co. whose liability is vanished will have to treat it as Income u/s 41 on account of unilateral write off by the loan giving co.
Writing off the loan payable by loss making company on its own will attract Sec 41 of the Income Tax Act as per whch the amount will be liable to tax.
Thanks for reply. As u say it is taxable if it s unilateral write off. What if writing off is done with mutual agreement of lender and loanee under an agreement between them? still it wil be taxable i hands of loanee?
Dear Friend,
I believe Sec. 41(2) talks abt only Trading liability, not any liability in the capital nature. In fact, it has also been decided by a SC judgement (case name not remembered to me). So, since unsecured loan being of capital nature, hence not taxable.
But still confirm my view with some professional!!
I believe Sec. 41(2) talks abt only Trading liability, not any liability in the capital nature. In fact, it has also been decided by a SC judgement (case name not remembered to me). So, since unsecured loan being of capital nature, hence not taxable.
But still confirm my view with some professional!!
in case of unsecured loans section 41 is not attracted, hence w/off is not taxable either unilaterly or with mutual consent.
Thanks for reply. Can anyne pl give a case law reference?
Sec 41comes into play when anything is recovered in future against any dedution, loss or expenditure of any previous year by any person. As unsecured loan when taken or subsequently never claimed as exp. or deduction by the loanee so writting it off will not attract sec.41 at all. Whether or not it is unilateral or otherwise. However the componet of interest if any which was not paid and written off together with the principal amount will be taxable under Sec.41(1) beyond doubt.
Sec 41comes into play when anything is recovered in future against any dedution, loss or expenditure of any previous year by any person. As unsecured loan when taken or subsequently never claimed as exp. or deduction by the loanee so writting it off will not attract sec.41 at all. Whether or not it is unilateral or otherwise. However the componet of interest if any which was not paid and written off together with the principal amount will be taxable under Sec.41(1) beyond doubt.
As an indivisual i take loan by cheque from an indivisual. But no claim for repayment of loan along with interest for last 5 years. The loan giver has dead and he has no succesor for claim the loan amount along with interest.What will be arise as per income tax act as well as in the accounts of loan taker?
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