Ceiling on rate of interest on loans paid by Companies

Hi Saurabh,

In terms of the Company law, there's no restriction as such on the maximum rate of interest a private company can pay on the unsecured loans raised from its members, directors or their relatives, like we have in the Income Tax Act on interest on partners' capital.But from the taxation point of view, trouble will arise when the company diverts funds raised via a high-interest bearing loan to advance money to a sister concern at a very low or nominal rate of interest. If a clear nexus between the money borrowed and the money lent is established, you'll be in for a disallowance of the interest paid by the company on the unsecured loans. So you can pay a reasonable rate of interest. And make sure if the company happens to advance money to any of its sister concerns, it charges an appropriate interest depending upon the composition—interest-bearing and interest-free- -of its own capital. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, sauranh jain wrote:>> Dear all> I have a query regarding payment of interest by a pvt. ltd. co on unsecured loans.> Is there any limit regarding the maximum rate of interest that a company can pay under the companies act or any limit imposed by RBI.> > Thanks in advance> > Saurabh Jain>