Loan transaction between two associated companies.

[zurpk]

Assalam-o-Alaykum dear members

There are two companies A & B. Company A has paid Loan to Company B. Now B wants to payback loan to A. However, B doesn’t know that whether there will be any deduction of income tax while paying back the loan or not. If income tax is applicable then what will be rate of deduction?
Can anybody explain whether deduction of income tax is applicable on the above case or not. If yes then what will be rate of deduction? Please also mention Income Tax section for reference.

Thanking you.

[kamranACA]

Dear Zia,

With regards to Income Tax Law, a company can borrow from the other and other can lend to it if

- such lending is in accordance with the memorandum of association of the other (covered in business objective clauses);

- both companies have NTN numbers;

- fund transfer is made through crossed banking channel (must be verifiable by income tax authorities);

There is no deduction required in respect of Income Tax at Source under any provision of the Income Tax Ordinance, 2001.

Companies should keep in view provisions of section 208 of Companies Ordinance ,1984, if these are associates.

Best regards,

Kamran.

[zurpk]

Thank you very much Kamran bhai.