Interest free loan

[Asked by 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 loan not treated as income under section 56(2)(v) when repayment obligation is documented by promissory note or cheque.
An interest-free advance is characterised as a loan with a reciprocal repayment obligation and thus treated as a capital receipt, not a taxable sum received without consideration; documentation such as a promissory note, bill of exchange or post-dated cheque is recommended to evidence the repayment undertaking.