Loan to director

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 December 2013 Can a private limited company give interest free loans to its directors of the company. If yes what is the procedure

Nikhil Kaushik

Nikhil Kaushik (Expert)
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29 December 2013 no. private limited companies are no more allowed to give loans to its directors or their relatives. Please refer Section 185 of companies act 2013.

Querist : Anonymous

Querist : Anonymous (Querist)

30 December 2013 But the loan were taken from the company 1 year back in 2012

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 December 2013 friend,

if the loans were given in 2012, then for what purpose you are asking for the procedure to give such loans??

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Querist : Anonymous

Querist : Anonymous (Querist)

30 December 2013 Procedure like , the company has given interest free loans to 2 directors but not the third director .

CA Kedar Sakhardande

CA Kedar Sakhardande (Expert)
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30 December 2013 Dear

when a company gives loan to director, it is called as "Deemed Dividend" as per Income Tax Act 1961 and ultimately the company has to pay dividend distribution tax on such loan.

Further, the procedure of companies act has to be followed

regards

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 December 2013 Dear Kedar Sahab,

deemed dividend applies to shareholder. It is not automatic assumption that director is the shareholder or the substantial shareholder.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 December 2013 also dividend distribution tax is not applicable on deemed dividend.

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CA Kedar Sakhardande

CA Kedar Sakhardande (Expert)
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30 December 2013 Partially agree sir

In a given situation, a company is a Pvt Ltd Co.

In most cases Pvt Co is closely held / family owned company wherein either directors are themselves shareholders or at least the family members.

So deemed dividend concept is very much applicable.

CA Kedar Sakhardande

CA Kedar Sakhardande (Expert)
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30 December 2013 DDT not applicable. I t will be taxable in the hands of individual

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 December 2013 presumptuous at best. At best you can say is that there is a possibility of deemed dividend trigger. Also as I said earlier, dividend distribution tax doesn't apply to deemed dividend.

CA Kedar Sakhardande

CA Kedar Sakhardande (Expert)
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30 December 2013 for DDT provision, I have admitted in my earlier massage

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Querist : Anonymous

Querist : Anonymous (Querist)

30 December 2013 Yes the directors are also the shareholders of the pvt ltd company.but the loan to director was given as per the board of resolution passed by he majority .

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 December 2013 if that is the case, then what Kedar bhai said will apply. the amount of the loan shall be added to director's income as deemed dividend.

However, this won't change the nature of transaction and the director still have to repay this loan back.