Dear Friends,
Can a Pvt. Ltd.Company give loan to directors and charge interest for the same.
Any restriction under the IT act or Co. law ? And does sec 301 apply to the same
Please Reply
16 Replies
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 13 April 2010
Section 295 loan to director is not applicable to a private company. Section 300 which pots restriction on interested director to vote etc. is also not to a private company.
However director would be considered as interested u/s 299 hence disclosure is required and entry u/s 301 register is also required.
Views of other members solicited.
RITU BAJAJ
(COMPANY SECRETARY)
(158 Points)
Replied 13 April 2010
Ya, I agree with the learned member. Pvt. Cos. can give loan and can also charge interest. There is no restriction for the same.
New Joinee
(none)
(118 Points)
Replied 13 April 2010
Thanks Ankur,
Sec 297 talks about contracts with other cos or organsiations, so does a loan to the director get covered under this to be reflected in the register to be maintained under 301.
RITU BAJAJ
(COMPANY SECRETARY)
(158 Points)
Replied 13 April 2010
Loan to a Director is not covered under Section 297 it attracts Section 295. Section 297 refers only to contracts for the sale, purchase or supply of any goods, materials or services or for underwriting the subscripttion of any shares in, or debentures of the Company. Loan to director is recorded in a seperate register i.e. "Register of Loans, Investments, Guarantees and Securities".
Others views are solicited.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 13 April 2010
Fully agree with Ritu. Section 297 has no role to play.
Section 301 treats section 297 and 299 independently. In other there are 2 routes for section 301. We have to follow the route of section 301 read with section 299.
New Joinee
(none)
(118 Points)
Replied 13 April 2010
so in simple terms, a loan can be given to a director of a pvt ltd co and interest also can be charged on it.
An there is No requirement to record it in the register to be maintained under sec 310 or "Register of Loans, Investments, Guarantees and Securities".
Request your confirmation & Thanks you both Ankur & Ritu, appreciate all your prompt responses.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 13 April 2010
You have to enter the details of transaction in 301 register coz your director is interested in the transaction u/s 299.
RITU BAJAJ
(COMPANY SECRETARY)
(158 Points)
Replied 13 April 2010
Ankur Sir,
Plz clarify that whether these transactions will be recorded in both the registers i.e. Register u/s. 301 and Register of Loans, Investments, Guarantees and Securities?
Regards
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 13 April 2010
No need to enter into 372A register as this is not inter corporate transaction.
RITU BAJAJ
(COMPANY SECRETARY)
(158 Points)
Replied 13 April 2010
Now its crystal clear to me. Thank you Sir.
Ravindra Manek
(Chartered Accountant)
(74 Points)
Replied 13 April 2010
Provisions of Deemed Dividend u/s. 2(22)(e) may get attracted in such situation. So take care of that.
Yeshwanth
(Chartered Accountant)
(145 Points)
Replied 13 April 2010
Sec 2(22)(e) will get attracted when a private company gives a loan to a share holder who holds not less than 10% of the equity shares in the company as on the date of the loan. Then, it will be taken as income in the hands of the director. The company should deduct TDS on the loan amount. The subsequent repayment of the loan by the director will not affect the taxing the original loan amount. So it is very risky.....
sandeep
(chartered accountant)
(332 Points)
Replied 13 April 2010
what about provisions of Deemed Dividend.
Shiva Kumar
(CA Final)
(208 Points)
Replied 13 April 2010
Regarding the Companies Act, everything has been said. But, you will have a HUGE Problem under Income Tax Act.
As, this is a Pvt company, i presume that the Director is holding atleast 20%.
In such case,
1. The advance money paid to him will be treated as DEEMED DIVIDEND in the hands of the Director
2. This is irrespective of the fact that the amount may be refunded later. That is, even if the loan is refunded the amount of Loan made will be treated as Deemed Dividend u/s 2(22)(e)
3. The Loan amount will be lower of Loan amount the profits available to the company as on the Date of the Loan.
4. Also, the company should deduct the Tax for this Deemed Dividend.
The Only saving area is, if
1. The Company has no profits
2. Or the Loan amount is subsequently adjusted the Dividend payable to him.
This will have huge repurcussion, see, if you give a loan of say Rs.10 lakhs to the Director, the Director needs to pay
1. Rs.10 lakhs back to the Company
2. The interest if any
3. Also, to Govt, by way of Tax of Rs.3lakhs.
The Director will be highly irritated if this Notice of Demand comes from ITO after some three years with loads of Interest and penalty prosecution. Mind you, even of the Director subsequently repays the amount, still it will be treated as Dividend
Also think from all angles.
Luck
Shiva
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