Unsecured loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 July 2012 Can a salaried individual give unsecured loan to ANY concern...proprietership, partnership etc. Is there any tax implications.

Guest

Guest (Expert)

17 July 2012 Consider the following points while giving loan:
1. Always give loan by a/c payee crossed cheque in case payment is more than Rs. 20000/-.
2. Obtain timely confirmation from lendors.
3. In case interest is received then check for applicability of TDS.

Querist : Anonymous

Querist : Anonymous (Querist)

17 July 2012 What about Interest free Unsecured loan?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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02 August 2025 Great question! Here’s the breakdown about **interest-free unsecured loans** given by a salaried individual to any concern (like proprietorship, partnership, etc.):

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### Can a salaried individual give an interest-free unsecured loan?

* **Yes, absolutely.**
There is no law prohibiting a salaried individual from giving an unsecured loan—interest-free or otherwise—to any person or entity.

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### Tax Implications of Interest-Free Unsecured Loan

1. **For the lender (salaried individual):**

* If **no interest** is charged, there is **no income** arising from the loan itself.
* The individual will **not have any interest income** to declare.
* However, if the loan is large and given without interest, the tax department may scrutinize the transaction under **Section 56(2)(vii)** (Income from other sources) if the loan amount is considered a gift or a deemed income in certain cases.
* But generally, pure loans without interest are not treated as income.

2. **For the borrower (concern):**

* Since no interest is charged, the borrower has no interest expense.
* No tax implications for borrower on the loan itself.

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### Other Important Points

* **Documentation:** Even if interest-free, it is advisable to document the loan with a **loan agreement** specifying the amount, date, repayment terms, and stating that the loan is interest-free.
* **Mode of Payment:** Preferably payment by **account payee cheque or bank transfer** to maintain transparency and proof.
* **TDS:** Since no interest is paid, there is no TDS liability for borrower.

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### Summary

| Aspect | Interest-Free Unsecured Loan |
| -------------------------- | -------------------------------------------- |
| Is it allowed? | Yes, permitted |
| Taxable Income for lender? | No interest income, so generally no tax |
| TDS applicability? | No TDS on interest since no interest is paid |
| Documentation recommended? | Yes, loan agreement and payment proof |

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If you want, I can help draft a simple **interest-free loan agreement template** for your use. Would you like that?

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