Friends,
You may give interest free loans to anybody including your own HUF or wife and you can not be subjected to tax on any notional interest income against such advances. The settled legal position in this regard would be as under:
‘If a tax payer advances an interest-free loan from his own funds or from borrowed funds on which he under no obligation to pay interest, the Income Tax Department can not question the decision as to why the tax-payer has not charged any interest on such loan advanced’
Only in a case , where the tax payer has diverted funds out of a borrowing on which he is paying interest can the tax authirities truly raise a grievance and that too on the ground of disaalowance of any interest paid.
The above is reported to you based on openion of Mr Mukesh Patel, an Ahmedabad based I-Tax consultant, appearing in todays addition of ToI.
HariOm,
KrsnaKhandelwal
