Moment guide · FY 2026-27

My company gave me a loan as a shareholder

Is a loan from my own company taxable as deemed dividend?

Sec 2(22)(e)Sec 56Sec 115BBDAVerified 2026-08-11

A loan or advance from a closely held company to a shareholder holding 10% or more is deemed dividend under section 2(22)(e), taxed at your slab rate, limited to the company's accumulated profits. Repaying the loan does not undo the deemed dividend for the year it was taken. The DDT abolition is irrelevant — this provision taxes the shareholder directly.

Your legitimate options

Every route the statute actually gives you — with its condition, cap and deadline.

Route	Condition	Cap / deadline
Loan to a substantial shareholder	A closely held company lending or advancing money to a shareholder holding 10% or more, or to a concern in which such a shareholder is interested	Deemed dividend u/s 2(22)(e) — taxed at your slab rate
Accumulated profits limit	The deemed dividend cannot exceed the company's accumulated profits at the time of the loan	Only the amount within accumulated profits is deemed dividend
Repayment does not undo it	Repaying the loan later does not reverse the deemed dividend for the year the loan was taken	The income was taxed in the year of receipt

The #1 trap

Believing a shareholder loan is 'just a loan' — for a closely held company it is deemed dividend under section 2(22)(e), taxed at your slab rate, and repayment later does not undo the tax. The abolition of dividend distribution tax changed nothing here; the provision has applied to the shareholder directly all along.

The decision path

Follow it top to bottom — the first condition that matches is your answer.

IF a closely held company lends money to a 10%+ shareholder → it is deemed dividend u/s 2(22)(e).
IF the loan goes to a concern in which the substantial shareholder is interested → it is also deemed dividend.
IF the company has no accumulated profits → the deemed dividend is limited to the accumulated profits available.
IF you repay the loan in a later year → the deemed dividend of the loan year stands; repayment does not reverse it.
IF you receive the amount as salary with proper documentation and TDS → it is salary, not deemed dividend, but must be genuine. [VERDICT: shareholder loans from closely held companies are dividends at slab.]

Worked example

Prakash, 60% shareholder of a family trading company

Prakash holds 60% of a closely held family company. In March 2026 the company advances him ₹25,00,000 as a 'loan' to buy a car, when its accumulated profits stand at ₹40,00,000. Under section 2(22)(e), a loan by a closely held company to a shareholder holding 10% or more is deemed dividend, so the entire ₹25,00,000 is treated as dividend income in Prakash's hands, taxed at his slab rate of 30%, giving tax of ₹7,50,000 plus cess — not the 10% dividend rate that applied to listed dividends. The deemed dividend is limited to the accumulated profits of ₹40,00,000, and since ₹25,00,000 is within that, the full amount is deemed dividend. In the next year Prakash repays the ₹25,00,000 from his savings, but the repayment does not undo the deemed dividend: the ₹25,00,000 was income of the year it was received, and the repayment is a separate capital movement with no tax effect. The abolition of dividend distribution tax in 2020 changed nothing for him, because section 2(22)(e) always taxed the shareholder directly at slab. If Prakash's wife, who is not a shareholder, took the same loan, it would not be deemed dividend under 2(22)(e) on her, unless she is interested in a concern that borrowed from the company. To avoid surprises, Prakash structures any genuine drawings as documented salary or repayment of a capital account already taxed, and keeps the loan ledger and board minutes. A quick call with us dials in the final figure. Prakash also checks the company's accumulated profits balance at the time of each loan, because the deemed dividend is limited to that balance; a loan taken after the profits are exhausted escapes the provision, while a fresh loan after new profits accrue is caught again. If the company is a widely held listed company, section 2(22)(e) does not apply, which is why the provision is specific to closely held companies. He also verifies that a loan to a firm or a private company in which he is a substantial shareholder is equally deemed dividend, because the provision covers loans to concerns in which the shareholder is interested. The TDS angle is separate: salary is subject to section 192, and a genuine, documented salary is not deemed dividend, but a thin salary alongside a large loan book will be examined as a whole. A quick call with us dials in the final figure.

Questions people actually ask

When does a shareholder loan become deemed dividend?

When a closely held company lends or advances money to a shareholder holding 10% or more (or a concern in which such a shareholder is interested), up to the accumulated profits, under section 2(22)(e).

What rate applies to deemed dividend?

Deemed dividend under section 2(22)(e) is taxed at your slab rate, not the lower dividend rates that apply to listed-company dividends.

Does repaying the loan remove the deemed dividend?

No. The deemed dividend is taxed in the year the loan is received; repaying it later does not reverse the income.

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Sections: 2(22)(e), 56, 115BBDA · Last verified 2026-08-11 · Reviewed by Harun Raaj & Associates, Chartered Accountants. Every figure cites the Income-tax Act, 1961 (with ITA 2025 mapping via our section index).