08 March 2013
DEAR SIR/MADAM , IS THAT COMPULSORY TO PAY/RECEIVE INTEREST ON UNSECURED LOAN IF THAT HAS BEEN TAKEN FROM RELATIVE OR ANY OF FAMILY MEMBER ????
IF MY FATHER HAS TAKEN 450000 RS AS A UNSECURED FROM ME...THEN IS THAT COMPOLSORY TO CALCULATE INTEREST AND ? IF YES THE @ WHICH RATE?? AND IS THERE REQUIRED ANY T.D.S. DEDUCTION IN THIS CIRCUMSTANCES????
01 August 2024
When your father takes an unsecured loan from you, the treatment of interest and TDS (Tax Deducted at Source) depends on a few factors:
### 1. **Interest on Loan:**
- **Interest Calculation:** Generally, for personal loans between individuals (such as a loan from a son to his father), there is no statutory requirement to charge interest. However, if you do decide to charge interest, it should be at a reasonable rate. There is no fixed rate mandated by law for personal loans between individuals.
- **Reasonable Rate:** While there is no specific statutory rate, a reasonable rate is typically aligned with the market rate for personal loans or prevailing bank interest rates. You can decide this rate based on mutual agreement.
### 2. **Tax Deducted at Source (TDS):**
- **TDS on Interest:** For unsecured loans between family members, TDS is generally not applicable. TDS is applicable on interest payments on loans when the loan is taken from banks, financial institutions, or other entities. For loans between individuals, particularly family members, TDS provisions do not apply.
### **Important Considerations:**
- **Documentation:** Even if TDS is not applicable, it’s a good practice to document the loan arrangement, including any agreed-upon interest rate, to avoid future disputes or misunderstandings.
- **Interest on Loan:** If interest is charged, the interest income is taxable for you, and your father will be able to claim the interest payment as a deduction (if applicable) in his financial statements. The interest should be reported as income in your tax return.
- **No TDS Required:** Since TDS provisions do not apply to personal loans between individuals, you do not need to deduct TDS on the loan amount or the interest, if any.
### **In Summary:**
- **Interest:** You are not legally required to charge interest, but if you do, ensure it is reasonable. - **TDS:** TDS is not applicable on unsecured loans between family members.
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