Frequently Asked Questions
What financial statements does a bank or NBFC require for a term loan or working capital facility?
Lenders typically require audited financial statements for the last 2-3 years prepared under the Companies Act 2013 (Schedule III), along with a Projected Balance Sheet and CMA (Credit Monitoring Arrangement) data as prescribed by the Reserve Bank of India under its Master Circular on Loans and Advances. For MSMEs, UDYAM registration under the MSMED Act 2006 is also submitted to qualify for priority sector lending rates.
How is interest on a business loan treated for income tax purposes under ITA 2025?
Interest paid on capital borrowed for business purposes is deductible under Section 37(1) of ITA 1961 (applicable for AY 2026-27 i.e. FY 2025-26) and its successor provision under ITA 2025 for TY 2026-27 onwards. For loans taken for acquiring a capital asset, interest during the pre-commencement period must be capitalised and added to the cost of the asset under Section 43(1) of ITA 1961 / ITA 2025.
What is TReDS and how does it help with working capital?
TReDS (Trade Receivables Discounting System) is an RBI-regulated electronic platform under the Payment and Settlement Systems Act 2007 read with RBI Master Direction DPSS.CO.PD No.1102/02.27.020/2014-2015. It allows MSMEs to discount their trade receivables (invoices) raised against corporates and government buyers at competitive rates. The discount income in the hands of the financier is taxable, while the MSME seller receives immediate liquidity.
Is equity funding through private placement subject to any SEBI or Companies Act filings?
Yes. A private limited company raising equity from investors through a private placement must comply with Section 42 of the Companies Act 2013 read with Companies (Prospectus and Allotment of Securities) Rules 2014. Form PAS-3 (Return of Allotment) must be filed with the Registrar of Companies within 30 days of allotment. The angel tax exemption under Section 56(2)(viib) of ITA 1961 has been abolished from April 1, 2025, so premiums received on share issuance are no longer subject to that provision.
What are the TDS implications when a company pays interest on debentures or inter-corporate loans?
A company paying interest on debentures to resident individuals must deduct TDS under Section 193 of ITA 1961 (AY 2026-27) at 10% if the interest exceeds Rs 5,000 per annum. Interest paid on inter-corporate loans is subject to TDS under Section 194A at 10%. Under ITA 2025 (TY 2026-27 onwards), these obligations map to Section 393 of ITA 2025. Failure to deduct results in disallowance of the expense under Section 40(a)(ia) of ITA 1961.
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