Inter Company Laons

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Jayesh Jagetiya (Querist)
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21 April 2009
Dear Friends,
We are working in a company which has Group of Companies.
We have more than Ten Public & Pvt Limited Companies, Firms, and Proprietorship Concerns. In Companies some Directors are common, in firms the same persons are Partners & in Proprietorship concerns they are proprietor.

These all concerns have transactions in between themselves (Purchase / Sale / Loan).
Whenever we open any new concern it takes loan from Old concerns.

My question is whether we have to charge interest for the Loans they are exchanging in between?

It is compulsory?

Under which section of Income Tax act / Company Law?

At which rate we should charge interest?

chetan soni

chetan soni (Expert)
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21 April 2009 Charging interest is not compulsory, but your are floating your money in others business. You must have CC a/c or saving a/c in case you have CC account then this money will be deposited in CC a/c, Due to that your interest will be less. As a prudence practice you should charge the interest on inter-company loan.

Income tax does not add the interest on inter company loan, but they can disallow the interest claim on CC to the extent money floated.

Rate for the same can be average CC a/c rate or it can be 12% p.a.