Can relative give interest free loans?

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 August 2011 Good Morning everybody

Wish to know that:

Whether a relative can give interest free loan to the proprietorship concern of relative????

Please explain with Income Tax Act & TDS Matters in relation to it also.

Thanks

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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13 August 2011 Yes. If the amount is more than Rs.20,000/- transactions should be by way of
account payee cheque / demand draft.
Since there is no interest, TDS provisions does not apply.

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Querist : Anonymous

Querist : Anonymous (Querist)

13 August 2011 Srry Mr. Chackrapani

I asked something else and you replies else.
Please go through again my question.
I asked about Interest free loan

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Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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13 August 2011 dear anonymous,
Mr. Chackrapaniji said about your query,

1. yes means, yes relative can give interest free loan to proprietorship firm
2. if interest in not going to pay then there is no tds rules effect
3. its the bonus...additional reply
if you take interest free loan you have to take care of amount you are going to receive morethan Rs. 20,000/- you must need to take a/c payee cheque from relative to avoid disallow sec.

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Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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13 August 2011 if you are asking anything else then you need to ask properly again

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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13 August 2011 Sorry experts I do not agree with you. Yes the relatives can give interest free loan but can they give interest free loan to the relatives by borrowing the funds. The answer is NO. In this case the relative who is giving interest free loan will not get the deduction for interest paid on amount borrowed.

The reply is Yes the relatives can give interest free loans up to the extant of their capital and free reserves and that too by cheque if it exceeds 20,000 or more.

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Querist : Anonymous

Querist : Anonymous (Querist)

13 August 2011 Thanks to Mr.Agrawal & Chakrapani Ji.to resolving the Querry