1.I am an Nri. I transferred money to my father in INR through bank transfer which he imvested in share trading.Can it be shown as loan to my father, for which He will be paying interest at 14 % to me by bank transfer.(so that his taxable income can be reduced and i will show the interest recieved in my income). Is an agreement needed for this loan for income tax purposes? If so is agreement in paper enough? Should it be registered?If agreement in stamp paper needed, can i do it now although money was transferred in april 2020.
Yes, interest on loan can be claimed as an expense in case funds are used solely for trading purpose. Interest rate has to be the market rate. If the funds are used for multiple purposes, then interest can be claimed proportionately. There is no agreement required. Only bank transfer is enough to claim the expense. The receiver should show it as income while filing ITR.
Hope this helps!
Thank for that information.
Is is possible to quote any clause or information from income tax or verdicts to support that… 1.interest paid on loan from relative is permissible, 2. Agreement not reqquired,…
Because my accountant claims that it is not allowed.
Thanking you in advance
As per Section 36(1)(iii) of the Income Tax Act, Interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed as a deduction. Any interest paid in excess of rates prevailing in the market would be disallowed.
As per our opinion, no formal agreement is needed in case of an unsecured loan. Payment of interest through bank is a valid proof of payment.