Loan from huf
This query is : Resolved
05 August 2015
Took a loan from HUF account and it transfer to company As Loan. Company Provide 10% Interest.Can i provide any Interest to HUF account??
05 August 2015
yes as there is no restriction for same
Message likes :
1 times
05 August 2015
Can I Deduct This Interest from Interest Received from Company Loan??
03 August 2024
Yes, you can provide interest to an HUF (Hindu Undivided Family) account and also deduct the interest paid to the HUF from the interest received from the company. Here’s a breakdown of the relevant considerations:
### **Interest Payment to HUF**
1. **Interest Payment:**
- **To the HUF Account:** The interest paid to the HUF on the loan given to the company can be recognized as a business expense by the company, provided it is a genuine loan and the terms are commercially reasonable.
- **Interest Rate:** You can provide any interest rate to the HUF account, but it should be aligned with what is commercially acceptable to avoid scrutiny.
2. **Deductibility of Interest:**
- **In the Company’s Books:** The interest paid to the HUF by the company is considered an allowable business expense and can be deducted from the company's income.
- **Interest Received:** On the other hand, the interest income received by the HUF from the company is taxable as income in the HUF’s hands.
3. **Tax Implications:**
- **For the Company:** Interest paid to the HUF is deductible as a business expense, reducing the taxable income of the company.
- **For the HUF:** The interest received from the company will be taxable as income in the HUF’s income tax return.
### **Example Scenario:**
1. **Loan Details:**
- The HUF provides a loan to the company.
- The company pays interest at 10% on this loan.
2. **Accounting Entries:**
**In the Company’s Books:**
- Loan Account (Payable to HUF): Credited with the principal amount.
- Interest Expense Account: Debited with the interest paid (e.g., 10% of the principal).
- Cash/Bank Account: Credited with the interest payment to the HUF.
**In the HUF’s Books:**
- Loan Account (Receivable from the Company): Debited with the principal amount.
- Interest Income Account: Credited with the interest received from the company.
3. **Tax Filing:**
- **For the Company:** Deduct the interest expense (10%) in its tax computation.
- **For the HUF:** Report the interest income (10%) in the HUF’s income tax return.
### **Regulatory Compliance:**
- **Interest Rate:** Ensure the interest rate is not excessively high or low compared to market rates, as it could attract scrutiny.
- **Documentation:** Maintain proper documentation of the loan agreement, including interest rates and repayment terms, to substantiate the transaction.
### **Conclusion:**
- You can provide interest to the HUF account, and this interest expense can be deducted from the company's taxable income.
- The interest received by the HUF will be treated as taxable income for the HUF.
- Ensure compliance with all relevant tax laws and maintain proper documentation for both the company and the HUF.
By adhering to these practices, you ensure that both the company and the HUF are correctly handling and reporting the loan and interest transactions.
### **Interest Payment to HUF**
1. **Interest Payment:**
- **To the HUF Account:** The interest paid to the HUF on the loan given to the company can be recognized as a business expense by the company, provided it is a genuine loan and the terms are commercially reasonable.
- **Interest Rate:** You can provide any interest rate to the HUF account, but it should be aligned with what is commercially acceptable to avoid scrutiny.
2. **Deductibility of Interest:**
- **In the Company’s Books:** The interest paid to the HUF by the company is considered an allowable business expense and can be deducted from the company's income.
- **Interest Received:** On the other hand, the interest income received by the HUF from the company is taxable as income in the HUF’s hands.
3. **Tax Implications:**
- **For the Company:** Interest paid to the HUF is deductible as a business expense, reducing the taxable income of the company.
- **For the HUF:** The interest received from the company will be taxable as income in the HUF’s income tax return.
### **Example Scenario:**
1. **Loan Details:**
- The HUF provides a loan to the company.
- The company pays interest at 10% on this loan.
2. **Accounting Entries:**
**In the Company’s Books:**
- Loan Account (Payable to HUF): Credited with the principal amount.
- Interest Expense Account: Debited with the interest paid (e.g., 10% of the principal).
- Cash/Bank Account: Credited with the interest payment to the HUF.
**In the HUF’s Books:**
- Loan Account (Receivable from the Company): Debited with the principal amount.
- Interest Income Account: Credited with the interest received from the company.
3. **Tax Filing:**
- **For the Company:** Deduct the interest expense (10%) in its tax computation.
- **For the HUF:** Report the interest income (10%) in the HUF’s income tax return.
### **Regulatory Compliance:**
- **Interest Rate:** Ensure the interest rate is not excessively high or low compared to market rates, as it could attract scrutiny.
- **Documentation:** Maintain proper documentation of the loan agreement, including interest rates and repayment terms, to substantiate the transaction.
### **Conclusion:**
- You can provide interest to the HUF account, and this interest expense can be deducted from the company's taxable income.
- The interest received by the HUF will be treated as taxable income for the HUF.
- Ensure compliance with all relevant tax laws and maintain proper documentation for both the company and the HUF.
By adhering to these practices, you ensure that both the company and the HUF are correctly handling and reporting the loan and interest transactions.
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