Become a Certified GST Practitioner in just 58 hours. Register Now!

LOAN TAKEN BY A PROPRIETORSHIP FIRM

Dimpy (Accounts) (104 Points)

06 February 2025

CAN A PROPRIETORSHIP FIRM TAKE LOAN FROM INDIVIDUALS OR OTHER COMPANIES WITHOUT INTEREST?

Reply
Follow
Share

1 Replies

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (6348 Points)
Replied 06 February 2025

In India, a proprietorship firm can take loans from individuals or other companies, but there are certain conditions and tax implications to consider.

Loan from Individuals or Companies without Interest As per the Income-tax Act, 1961, a proprietorship firm can receive loans from individuals or companies without interest.

However, the tax implications and conditions are as follows: Tax Implications and Conditions 1. *Tax-free loan*: If the loan is received from a relative (as defined under the Income-tax Act), it is not considered taxable income.

2. *Interest-free loan from others*: If the loan is received from a non-relative, the interest-free loan may be considered taxable income under the head "Income from Other Sources."

3. *Section 56(2)(vii)*: If the loan exceeds ₹20,000 and is received from a person other than a relative, the interest-free loan may be taxed as "Income from Other Sources" under Section 56(2)(vii).

4. *Section 40A(2)(b)*: If the loan is received from a person other than a relative and is used for business purposes, the interest-free loan may be allowed as a business expenditure under Section 40A(2)(b). Important Considerations

1. *Documentation*: Maintain proper documentation, including loan agreements, to support the loan transaction.

2. *Repaid loan*: Ensure the loan is repaid within a reasonable timeframe to avoid tax implications.

3. *Tax implications on repayment*: If the loan is repaid with interest, the interest paid may be allowed as a business expenditure under Section 36(1)(iii). It's essential to consult with a tax professional or chartered accountant to ensure compliance with tax laws and regulations.

Upgrade to CAclubindia Pro. Subscribe Now!

Join CCI Pro

Recent Topics

More recent discussions | Post

Related Threads

Popular Discussion

Start a New Discussion

CCI Pro

Trending Online Classes

Live GST Certification Course - 41st Batch(With certification)

Industry Expert

Enroll Now

17 February 2025
25 Hours GST Scrutiny of Return and Notice Handling(With Recording)

Industry Expert

Enroll Now

04 February 2025
Survey, Search and Seizure under Income Tax Act 1961

CA Hari Agarwal

Enroll Now

01 February 2025

view all classess

Subscribe to the latest topics :

Search Forum:

Forum Home

Popular Threads

Recent Posts

Unreplied Threads

Settings