Interest free loan

[Guest]

can interest free loan be added u/s 56[2][v] ? as any sum recd?

[DEV KUMAR KOTHARI]

Any amount received as a loan is not a sum of money received without consideration. There is consideration by way of undertaking or promise for repayment of loan on demand or after some time. Thus any loan whether with interest or without interest cannot be considered as income u/s 56 (2) (v). Loan is also a capital receipt and capital receipts cannot be brought to tax in view of purpsoes of the I.T.Act and also the authority under constitution of India, which only permit tax on incom. It is advisable to make a promissary note or Bill of Exchange or post dated cheque can be given at the time of receipt of loan to make the matter beyound doubt.

AI Summary

Interest-Free Loans Not Considered Income Under Section 56(2)(v) of Income Tax Act; Ensure Documentation for Clarity. A query was raised regarding whether an interest-free loan could be considered income under Section 56(2)(v) of the Income Tax Act. The response clarified that a loan, whether with or without interest, is not income because it involves a promise of repayment, thus constituting consideration. Loans are classified as capital receipts, which are not taxable under the Income Tax Act. It was advised to document the loan with a promissory note, bill of exchange, or post-dated cheque to ensure clarity and avoid any tax implications.