May 15, 2024

Funds borrowed from people who are either a part of the firm or have a personal connection to the directors are loans from directors, shareholders, and relatives of the directors.  When a business is unable to secure finance from conventional sources like banks or financial organizations, these loans can help. Businesses in India may borrow money from shareholders, directors, or directors’ families, subject to certain restrictions set down in the Companies Act of 2013.  According to the statute; a business may only borrow up to 60% of its paid-up share capital and free reserves from directors, shareholders, or relatives of directors.  The interest rates for the loans shall not be less than those that are currently being charged in the market for loans of a similar nature. Companies must also report in their financial accounts any loans they receive from shareholders, directors, or directors’ families under the law.  The corporation must conduct a general meeting to approve any loans that are over the permitted limit. It is significant to note that borrowing money from shareholders, directors, or relatives of directors may lead to conflicts of interest and be interpreted as the directors using the firm as a means of personal enrichment.  It is advised that businesses have a clear policy for loans from related parties and disclose all such transactions to stakeholders to avoid these conflicts.  Furthermore, it’s crucial to confirm that these loans are in the company’s best interests and do not conflict with any laws or regulations. Private Company accepting a loan from Directors or Relative of Directors A private company can accept money as a deposit or loan from a director of the company or a relative of the director. However, in such instances, the following conditions shall be met: The Director of the company, during the dispersal of a loan, shall furnish in writing a declaration to the effect that the amount is not being given out of amount obtained by him by borrowing or accepting loans or deposits from others; and Disclosure of the details of money so accepted by the Company in the Board’s Report. Criteria of Availing loan by Companies in India The Private Company can avail loan from- Directors Shareholder Relative of Director Either from their own fund i.e. Directors from its funds, Relative from its funds or Shareholders up to (100% of Paid-up share capital plus free reserves, plus Security Premium Account). Further, the following key features are also taken into consideration for availing loans from Directors, their relatives or Shareholders. The position of the director at the time of acceptance of a loan or deposit will be considered. A declaration will be submitted by the director with the Company, that the amount given by the director is not being given out the amount obtained by him by borrowing or accepting loans. However, the company can accept any amount of loan from the director. Accepting Loan from Director who is also the Shareholder In Private companies, the directors and the shareholders are the same in terms of funding the company. Per the compliances and pecuniary limits, it is suitable that the person providing the loan discloses the capacity in which the loan is given to such companies (i.e. whether the amount is given in the capacity of shareholder or director). Based on this, the company shall ensure compliance. The compliance is very crucial with respect to the acceptance of unsecured loans from directors and shareholders of the private company. As the person or company is required to comply and make disclosures. Compliances required to be done for accepting the Loan from directors he company needs to file a return in e-Form DPT-3 (along with prescribed fees) on or before June 30, of every year with the Registrar of Companies, as the amount under Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014, lay under the category of Exempted deposits. Furnishing the requisite information contained therein as on the 31st day of March of that financial year. Every company to which deposit rules apply shall on or before the 30th day of June, of every year, file with the Registrar, a return in Form DPT-3 mentioning the details of the deposit. Circumstances under which the Private company can accept the deposits from members without complying with the provisions of Section 73(2) The company which accepts deposits from its member not exceeding 100% of the aggregate of the paid-up capital, free reserve and Securities Premium Account or, The private company, which is a start-up, for 5 years from the date of its incorporation. The Company is not an associate or a subsidiary of any other Company; The Borrowing limit from the banks or financial institutions or any company is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower; and A company has not failed in the repayment of such borrowings subsisting at the time of accepting deposits under the section. FAQs Can a company take a loan from its directors? Yes, a company can take a loan from its directors, subject to compliance with the provisions of the Companies Act, 2013, and other relevant laws. Are there any restrictions on the amount that can be loaned by a director to the company? Yes, there are restrictions. The loan amount should not exceed the limits prescribed under the Companies Act, 2013, which generally restricts the amount to lower of: 100% of the paid-up share capital, free reserves, and securities premium account; or 10% of the total assets of the company. Practice area’s of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection |

A person must comprehend the fundamental differences between the TIN, TAN, PAT, DIN, DSC, and VAT before starting a firm. These three-letter terms are extremely important for any business owner to grasp since they will aid in understanding the compliance requirements when starting a business and engaging in any financial activity with the intent of profiting from it. When applying for a personal loan, filing income tax returns, or deducting taxes, one must keep their documents in order. Most of these procedures require identification details, proof of address, proof of employment or business, and so on.  all their client’s KYC identification documents have updated information. A single slip-up may halt the entire loan application process and may damage the relationship between customers and the lending institution you have partnered with. TIN, TAN, VAT, PAN, DSC, DIN, and Aadhar card numbers are not replaceable. Information on TAN TAN (Tax Deducted and Collection Account Number) is involved whenever a company is established and an employee is hired. The TAN is a number provided to employers/ individuals who are required by the Income Tax Act to deduct taxes on payments made by Businesses. If a company doing TDS (Tax Deducted at Source) does not have a legitimate TAN, it will face serious legal consequences. Once a company has a TAN, it is the responsibility of the company to file TDS Returns every quarter. Information on TIN/VAT Taxpayer Identification Number (TIN) is the complete version of what was previously known as the VAT (Value Added Tax) / CST (Central Sales Tax) or Sales Tax Number. This number is provided by the Commercial Tax Department and aids in the identification of individuals and businesses who pay commercial taxes to the State Government. It is a one-of-a-kind eleven-digit number that must be used for all VAT-related Business Transactions. In addition, it serves as a registration number for businesses that have registered with the VAT Office. This agency was in charge of interstate sales taxation before the implementation of the Goods and Service Tax (GST). As a result, the TIN or VAT applies to all types of commodities, including manufactured goods, export things, e-commerce items, and retail goods. The VAT or TIN has been superseded by the GST or GSTIN after the introduction of the GST (Goods and Service Tax) in 2017. Information on DIN A Director Identification Number (DIN) is a one-of-a-kind number assigned to an existing or future director of a corporation and required for registration. The terms Director Identification Number (DIN) and Designated Partner Identification Number (DPIN) are interchangeable. In India, a DPIN is necessary to register an LLP. The DIN usually comprises all of the personal information about the individual who is about to become a Director. Persons are the only ones who can receive a DIN. By giving proof of identification and address, both Indian and foreign citizens can obtain a DIN. Because the Digital Signature Certificate (DSC) is required when applying for a DIN, therefore it must be obtained first. Information on DSC Digital Signature Certificates (DSC) are an electronic format of permission that can be used to prove an individual’s identification in specific online transactions and files. In India, DSCs are primarily used by the Ministry of Commerce and Industry, the Income Tax Department, the Directorate General of Foreign Trade, E-Tenders, and the Employee Provident Fund (EPF). 3 types of DSC Class Class 1: It is used to keep e-mail communication secure. It verifies the user’s email address and name. Class 2: Class 2 certificates are mostly used for the Company Incorporation, Income Tax Return, E-filing, LLP (Limited Liability Partnership), and others. Class 3: Class 3 certificate is utilized for e-auction and e-tendering participation, It covers a wide range of topics, including contract forms, bid document submissions, and so on. Information on PAN The PAN (Permanent Account Number) is a ten-digit alphanumeric code that is used to identify every Indian Taxpayer. This number pertains to everyone in India, including individuals, Foreigners, Businesses, Trusts, and HUFs. It is a vital document that also functions as identification. It is provided by the Income Tax Department of India. Anyone who wants to start their own business must have a valid PAN Card. In addition, the IT Department uses this card to keep track of all financial transactions as well as the taxable portion of such transactions. In addition, this PAN Card is now necessary for big cash deposits, the acquisition of loans, and the purchase of immovable assets. Difference between TIN, TAN, PAN, DSC, and DIN TIN TAN PAN DSC DIN TIN stands for Tax Identification Number. TAN stands for Tax Deduction and Collection Account Number. PAN stands for Permanent Account Number. DSC stands for Digital Signature Certificate. DIN stands for Director Identification Number. Distinct states have different laws that apply to TIN. The Law applicable to TAN is under section 203A of the Income Tax Act. The law applicable to PAN is under section 139A of the Income Tax Act. As per the Companies Act, 2013. The Law applicable for DIN is under sections 153 and 154 of the Companies Act. Enterprises requesting VAT registration, such as exporters, manufacturers, traders, and dealers of products and services, must register for a TIN. TIN now replaced with GSTIN. TAN is a ten-digit alphanumeric number issued by the Indian Income Tax Department to individuals who are obligated to deduct or collect tax on payments made under the Indian Income Tax Act, 1961. PAN (Permanent Account Number) is a 10-digit identification number required by the Income Tax Department for anybody who conducts financial transactions or pays taxes. Digital signatures are required for certain documents and transactions to be filed online. DIN is a unique identification number reserved for the company’s current or upcoming directors. It contains personal information about them. TIN is issued by the Commercial Tax Department of the respective States. TAN is issued by the Income Tax Department. PAN is issued by the Income Tax Department. It is issued by any licensed certifying authority, as per section 24

The Employees’ Provident Fund or EPF is a popular savings scheme that has been introduced by the EPFO under the supervision of the Government of India. The employee and employer each contribute 12% of the employee’s basic salary and dearness allowance towards EPF. The current rate of interest on EPF deposits is 8.15% p.a. The accrued interest on the EPF is tax-free and can be withdrawn without paying for the same. Employees avail of a lump-sum amount on their retirement, which is inclusive of the accrued interest. Individuals can apply to avail of various online services of EPF India by accessing the official portal. The EPF online portal is a user-friendly platform that ensures the flow of services is transparent, efficient, and hassle-free. EPF (Employees’ Provident Fund) is a retirement benefits scheme provided by the Employees’ Provident Fund Organization (EPFO). The employee and the employer contribute to the EPF India scheme on a monthly basis in equal proportions of 12% of the basic salary and dearness allowance. EPF is a tax-saving instrument that offers relatively higher interest rates on investments. A part of the employer’s contribution (8.33% out of 12%) is directed towards the Employees’ Pension Scheme (EPS).  EPFO – Employee Provident Fund Organization EPFO or Employees’ Provident Fund Organisation is a non-constitutional body that promotes employees to save funds for retirement. EPFO was launched in 1951 and is governed by the Ministry of Labour and Employment. It offers schemes that cover Indian and international workers. Schemes Offered Under EPFO Given below are the three schemes that are offered under EPFO: Employees’ Provident Funds Scheme 1952 (EPF) Employees’ Pension Scheme 1995 (EPS) Employees’ Deposit Linked Insurance Scheme 1976 (EDLI) EPF interest rate for FY 2023-24 The interest rate on EPF is reviewed annually. EPF interest rate for FY 2023-24 is 8.25%. Once EPFO notifies the interest rate for a financial year and the year ends, the interest rate is calculated for the month-wise closing balance and then for the entire year. The year in which the new interest rates are announced stays valid for the next financial year i.e. from the year starting on 1st April of one year to the year ending on 31st March of the next year. Here are a few important facts to know about EPF Interest Rate 2023-24: The rate of interest i.e. 8.25% is valid and will be applicable only on EPF deposits made between the months of April 2023 and March 2024. The interest, even though calculated on a monthly basis, is transferred to the Employees’ Provident Fund account only on a yearly basis on 31st March of the applicable financial year. The transferred interest is summed up with the next month i.e. April’s balance and is then again used for the calculation of the interest. If the contribution is not made into an EPF account for thirty-six months continuously, the account becomes dormant or inoperative. Interest is offered on inoperative accounts of employees who have not attained retirement age. Interest is not provided on the amount deposited in inoperative accounts of retired employees. The interest earned on inoperative accounts is taxable as per the member’s slab rate. For contributions made towards the Employees’ Pension Scheme by the employer, the employee shall not receive any interest. However, a pension is paid out of this amount after the age of 58. Objectives of EPFO To ensure that each employee only has one EPF account. Compliance must be made as simple as possible. Ensure that organizations follow all of the EPFO’s rules and regulations regularly. To assure the dependability of internet services and to increase their facilities. All member accounts should be easily accessible online. Claim settlement times will be lowered from 20 to 3 days. Encouragement and promotion of voluntary compliance. UAN and EPFO Portal All EPF subscribers have online access to their PF accounts and can execute operations such as withdrawal and checking their EPF balance. EPFO assigns each member a 12-digit number known as the UAN. Even if an employee changes employers, his or her UAN remains the same.  The Universal Account Number (UAN) simplifies access to the EPFO member portal. When a member’s job changes, his or her member ID changes, and the new ID is linked to the UAN. Employees must, however, activate their UAN to use the services online. EPF Eligibility The Employee Provident Fund is open for employees of both the Public and Private Sectors, which means all employees can apply to become a member of EPF India. Any organization that employs at least 20 individuals is deemed liable to extend the benefits of EPF to its employees. After becoming an active member of the EPF scheme, the employees are eligible to avail of several Employees Provident Fund benefits, including insurance benefits and pension benefits. EPF Contribution The employer and the employee make equal contributions to the EPF account as shown below: Contribution by Monthly Percentage Contributed Employer 12% Employee 12% or 10% Total 24% Key Points about EPF Contribution: 12% Employer’s contribution includes 3.67% EPF and 8.33% EPS (also known as EPF pension) 10% EPF share is valid for the organizations where there are 20 or less than 20 employees /organizations with losses incurred more than or equal to the net worth (at the end of the financial year) /organizations declared sick by the Board for Industrial and Financial Reconstruction The total contribution made by the employer is distributed as 8.33% towards the Employees’ Pension Scheme and 3.67% towards the Employees’ Provident Fund. All contributions are updated in the EPF member passbook The contribution made by the employee goes totally towards the provident fund of the employee. Apart from the above-made contributions, an additional 0.5% towards EDLI has to be paid by the employer. Certain administration costs towards EDLI and EPF standing at the rate of 1.1% and 0.01% respectively also have to be incurred by the employer. This means that the employer has to contribute a total of 13.61% of the salary towards this scheme. Employee’s Contribution towards EPF The contribution rate