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Under section 2(24) (vd) of the Income tax Act , 1961, income would include the value of any benefit or perquisite taxable under clause (iv) of section 28. Until now this section/clause can be invoked only where the benefit or perquisite arising from the business or profession is other than cash going by the premise/words “ whether convertible into money or not” used in section. 

There r situations where interest free loans and advances are made by holding companies to subsidiaries and among sister enterprise. On reference to the interest charged and interest paid by the holding entity a question may arise whether loans advanced by the holding company were out of interest bearing loans and therefore to that extent there is often a disallowance made by the tax officer under section 36. Even otherwise a further contention is raised by authorities that if there was no interest free lending , the whole of such funds would have fetched income to the lender. The taxpayer in such a situation may demonstrate that the money lent is out of his own capital funds and not from borrowed monies to escape addition. 

Now section 28 is amended to rope in any and every transaction of interest free borrowing under the tax ambit where the tax officer of the borrower recipient may jump in and tax no matter the argument or fact that the money is given by the lender out of its own capital and reserves. 

Borrowers ( inter company ) therefore need to check out their balance sheets and books and ascertain whether interest rates are commensurate with market driven rates. 

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