Milan Agrawal (Chartered Accountant) (207 Points)
23 May 2014Dear All,
One of my client invested Rs.1 Crore in LIC. After some times, he took loan of Rs.75 Lakhs from LIC against that investment in 2011 and again invested that loan amount again in LIC Policy. Now, the Interest on Loan from 2011 to 2014 became Rs.25 Lakhs, hence, the total loan outstanding incl. Interest became Rs.1 Crore (75 L + 25 L).
My query is whether the Interest of Rs.25 Lakhs on Loan from LIC is allowable as expense from Business Income.
Harendra Kumar
(Tax Advisor )
(1326 Points)
Replied 23 May 2014
Sir,
It is your personal loan or Business loan, If you having business loan then you deducted allow as per law, or if you having the personal loan then also allow as per law.
Further, In this regard, If you having business income as a interest recd. such income calculated in your business income or If you having the personal interest income then you calculated in personal.
Hope you clear the position if you having any doubt. Plz forward the same.
Milan Agrawal
(Chartered Accountant)
(207 Points)
Replied 23 May 2014
Dear Harendra,
The loan amount was again invested in LIC.
Harendra Kumar
(Tax Advisor )
(1326 Points)
Replied 23 May 2014
Sir,
It is good you investment again but it is a personal loan or business loan. You can either benifit availed as per law.
Milan Agrawal
(Chartered Accountant)
(207 Points)
Replied 02 June 2014
Harendra Kumar
(Tax Advisor )
(1326 Points)
Replied 02 June 2014
Then it is treated a Busness Investment under Accounts Head Investment and Deposits i.e. Current Assets and better tell you CA. Because I amdeal in Direct Tax only Individual Income.
Hope put-up the question Ms. Pandit, CA. PLZ.
I am assuming that the client runs a proprietory (not a company/ firm) business and hence the LIC investment was classified as investment. When the loan is taken, it is shown as secured loan as a liability in BS.
Since, the loan is taken solely for the purpose of buying another LIFE insurance policy on the life of the proprietor, the interest on that loan should be classified as drawings (personal expenses). Even if it is debited to P& L a/c, it should be added back to income and reported in form 3CD as personal expenses.
If the LIC loan was used for business purposes eg buying fixed assets, materials etc, then the interest thereon would have been business expenditure Even then you would have to disallow prior period expenses from 2011 to 2013.
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