If I borrow 10 lakhs from a friend, how much tax do I need to pay?

Taxation
1

If I borrow 10 lakhs from a friend, how much tax do I need to pay?

Do I need to pay tax on the entire 10 lakh by showing it as my income? or only on the profit that I earn by investing 10 lakhs

2

@Quicko

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3

Hey @Jack_R,

There is no tax required to be paid on the borrowed loan amount. The profits earned will be taxable, depending on the intent of trading.

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4

Thanks, do I need a loan agreement to borrow the money? How does it work?

5

Hi @Jack_R,

Yes, to be on the safer side, you should get a loan agreement done. You can provide the same to the ITD as proof of the amount received in your bank account.

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Hi @Quicko

Is there any cap on the interest rate my friend can charge me on papers?

7

As per Indian law, only a registered Bank or NBFC can charge you interest for lending money. Any private person, charging interest for lending money is liable to be prosecuted.

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8

You can for sure can take money from a friend.
That payment should be through cheque or bank account . Never by cash. So that it can be accountable for later use. TDS will do the job.

Yes . You have cap of interest rate by state wise. Generally it’s 18%

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9

Thanks for clarification

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10

it is not applicable in case of individuals !!!

11

Yes it’s not applicable untill withdrawing 20 lakhs or so

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12

Hey @abc,

There’s no cap on the interest rate if both parties agree. However, it is recommended to charge interest according to the market rates.