interest on unsequerd loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 March 2011 dear sir
i am an account assistant.my qualification is m.com. i want to know that can i show interest on unsecured loan if yes what is the limit of interest on unsecured loan as per income tax norms.
thank you
alam

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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02 March 2011 Interest can be levied on unsecured loans. Rate of interest should not be more than the prevailing bank lending rate. Pl also see the applicability of TDS provisions in section 194A.

CS LLB Pulkit Gupta

CS LLB Pulkit Gupta (Expert)
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02 March 2011 There is no limit as such.But Assessing officer generally does not allow more than 30% rate of interest payment (24% on the safer side) and may add back the extra interest charged to P&L.

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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02 March 2011 Gupta Ji
I agree that there is no % limit for such interest payment in the IT Act,1961. But
this 24 % and 30 % affair is a violation of the provisions of Money Lending Act of the respective states. If viewed in this angle, will a higher rate than the bank rate have any effect so as to come with in the ambit of the explanation to section 37 of the Income tax Act,1961.

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CS LLB Pulkit Gupta

CS LLB Pulkit Gupta (Expert)
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02 March 2011 Yes Sir I totally agree with your explanation. Well there is no such limit of providing interest but if the interest payment is more than the prevailing market/Bank lending rates then the Assessee s'd be ready for justification for doing so when such case falls under scrutiny.

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