Loan from Friend

This query is : Resolved

Aston Albuquerque (Querist)
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26 January 2010 My close friend wants to help me by giving me interest free loan of Rs. 5.00 lacs to start a business.
He does not want any interest and repayment is after ten years.
He is a tax payer and giving me money by crossed cheque.
Is it okay as per Income Tax law to accept interest free loan for such a long period?

Kapil Arora

Kapil Arora (Expert)
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26 January 2010 As Income Tax law there is no rest for such transaction bt please take a written proof for such a transaction

CA Prashant Gupta

CA Prashant Gupta (Expert)
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26 January 2010 I agree with kapil. in income tax no such provision to apply tax for this. But proof of this should be arranged for further safety.

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CA.Pujah

CA.Pujah (Expert)
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27 January 2010 If the same loan were from a relative it would have been covered under tax net. But as the giver is your friend, the same will be out of tax ambit unless a written agreement exist thereto to explain the terms of the agreement. Because whenever an ITO asks you you should be able to explain the receipt otherwise it will be covered under unexplained cash.

Bimal Thacker

Bimal Thacker (Expert)
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27 January 2010 I agree with the expert. However I would like to add more, that you should be able to satisfy the assessing officer about the genuiness of transaction and the capacity of the person who has given the loan. If he is filling his Balance sheet with return of income then it will be easy for you to satisfy the assessing officer.