12 March 2021
If private limited company Receives loan of Rs.10Lacs from its director(as well as shareholder).Then how the company can repay the same and whether TDS is to deducted for the same or not?
10 July 2024
When a private limited company receives a loan from its director (who is also a shareholder), here are the key considerations regarding repayment and TDS (Tax Deducted at Source):
### Repayment of Loan:
1. **Mode of Repayment:** - The repayment of the loan can be made through various modes such as bank transfer, cheque, or demand draft. - It's advisable to make the repayment through banking channels to maintain proper documentation and compliance.
2. **Interest on Loan:** - If there is an agreement or understanding that the loan carries interest, ensure that interest is paid at a rate that complies with the provisions of the Income Tax Act, 1961. - Interest paid on the loan should be deducted at source under section 194A if it exceeds specified limits (currently Rs. 5,000 per annum per depositor).
3. **Repayment Schedule:** - It's important to have a clear repayment schedule documented to avoid any disputes or misunderstandings in the future. - Repayments should be made as per the agreed terms (e.g., monthly, quarterly, annually).
### Tax Deducted at Source (TDS):
1. **TDS on Interest:** - If the loan carries interest and the total interest paid or credited exceeds Rs. 5,000 in a financial year, the company is required to deduct TDS under section 194A at the time of credit or payment of interest, whichever is earlier. - The current rate of TDS under section 194A is 10% (subject to change as per updates in the Income Tax Act).
2. **No TDS on Principal Repayment:** - There is no requirement to deduct TDS on the repayment of the principal amount of the loan. - TDS is applicable only on interest payments exceeding Rs. 5,000 per annum.
### Documentation and Compliance:
1. **Loan Agreement:** - It's essential to have a loan agreement in place specifying the terms of the loan, including interest rate (if any), repayment schedule, and other relevant terms. - Proper documentation helps in ensuring clarity and compliance with legal and tax requirements.
2. **Income Tax Compliance:** - Ensure that all transactions related to the loan, including interest payments and TDS deductions (if applicable), are properly recorded in the company's books of accounts. - Form 26QB or other applicable forms should be filed with the Income Tax Department for TDS deductions and payments.
In conclusion, while repaying the loan from a director-shareholder of a private limited company, ensure compliance with the provisions of the Income Tax Act regarding interest payments and TDS deductions. Proper documentation and adherence to legal requirements will help in maintaining transparency and avoiding any future issues.
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