Interest free loan by pvt. ltd. co.

Your query is: Can a PVT. Ltd. Co. give interest free loan to a partnership form in which its director is a partner ? is there any restriction by Company Law or Income Tax Law?

There is no bar under the income tax law; but you have to take care of 'deemed dividend' under S.2 (22)(e) of the Income tax Act 1961, if you want to avoid the loan amount being taxed as 'dividend ' in the hands of the Direcor-partner.

Also, any interest expenditure claimed by the company is liable for disallowance,if the advance is not for any business purpose of the company.

sir,

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