Loan from relative of Director

Query:Loan from relative of Director 

A private limited company wants to take a loan from the daughter of one of its Directors . Her source of funds is from having worked abroad but  now she will be back  in the country . 
My queries are as follows : 
1 ) What is the minimum  rate of interest to be charged on the loan amount ? 
2) Is there any ground on which TDS may not be deducted from her on the interest paid to her as she may not be having taxable income   immediately  ? 
3)  What are the  disclosure requirements in the accounts  for taking the loan from her ,  being a relative of the Director though not having any role in the day to day running of the company ? 
 

 

Reply:1

Any rate at par with Bank lending rate is a justified rate. If the deductee does not have any non deduction certificate from concerned Income Tax authority then TDS has to be made for a payment above Rs.5000 during a FY under Sec.194A. The transaction has to be disclosed as a related party transaction. 
Regards 
DIPANJAN BOSE 
FCA,DISA 
9830071654 

Reply:2

DEAR CA DIPANJAN BOSE 

IO WILL LIKE TO ADD HERE THAT A DECLARATION SHOULD BE TAKEN ON RECORD THAT THE MONEY SO LENT IS OUT OF THE LENDER'S OWN FUNDS AND NOT OUT OF THE BORROWED FUNDS. 
  
FURTHER,ACCORDING TO THE UNDERSIGNED IF THE REQUIREMENTS OF SECTION 3(1)(iii)(d) OF THE COMPANIES ACT, 1956 ARE THERE IN THE ARTICLES OF ASSOCIATION OF THE COMPANY, 
  
REGARDS 
  
CMA & CS   S  K  JAIN 
(0) 9830492422 

Reply:3

Dear all,

One of the important aspect is also that the person giving the loan should be a shareholder of the company, otherwise it will be treated as deposit. Further a declaration received in Form 15H (If she does not have taxable income but having PAN) will be sufficient reason for the company for non deduction of tax on interest paid to her.

Regards

Raj Singhania, FCA
+91-9830227678

Reply:4

DEAR CA RAJ SINGHANIA 
  
YOUR ATTENTION IS DRAWN TO THE PROVISIONS OF SECTION 3(1)(iii)(d) OF THE ACT WHICH READS AS - 
  
        "(d) prohibits invitation of acceptance od deposits from persons other than the  
               membners, directors or their relatives;" 

Accordingly, the Rules cannot supercede the Act and the amount taken from relatives does not fall within the purview of deposits under the deposit Rules read with Section 58A of the Co.Act, 1956. 
  
Here, "Relative" should be as defined in Section 6 read with Schedule 1A appended to the Companies Act, 1956.