Loan Agreement Between Individuals – India template

Overview

A Loan Agreement Between Individuals documents a personal loan made directly from one individual (the lender) to another (the borrower), outside the banking or NBFC system. It records the amount lent, the repayment schedule, any interest, and the consequences of default, and its enforceability rests on ordinary contract principles under the Indian Contract Act 1872 — a valid offer, acceptance, consideration (the sum advanced), and the capacity and free consent of both parties. Cash-transaction restrictions under the Income Tax Act 1961: this is the single most important compliance point for loans between individuals in India. Section 269SS prohibits a person from accepting a loan or deposit of Rs 20,000 or more in cash — the amount must be received by account payee cheque, account payee bank draft, or electronic clearing through a bank account (including UPI and other prescribed electronic modes). Section 269T imposes the mirror-image restriction on repayment: a loan of Rs 20,000 or more cannot be repaid in cash either. Breach of either provision exposes the recipient (or repayer) to a penalty under Section 271D (or Section 271E) equal to the entire amount of the loan or deposit accepted or repaid in cash — not merely the excess over Rs 20,000. Because the penalty is so severe relative to the amount involved, both parties should route the loan and every repayment through a traceable banking channel from the outset. Stamp duty: a loan agreement, or the promissory note/bond that sometimes accompanies it, is generally a chargeable instrument under the Indian Stamp Act 1899. Stamp duty rates, the party liable to pay, and the procedure for stamping (physical stamp paper, franking, or e-stamping) differ from state to state, and some states also prescribe a ceiling or a fixed nominal duty for such instruments. An instrument that is unstamped or insufficiently stamped can face difficulties being admitted as evidence in court. Because of this state-level fragmentation, parties should confirm the applicable duty and stamping procedure for the state where the agreement is executed rather than assume a single nationwide rate. Interest and moneylending regulation: parties are generally free to agree an interest rate under the Indian Contract Act 1872, subject to it not being unconscionable or usurious, which courts can strike down or moderate. Where the lender is lending as an occasional accommodation to family, a friend, or an acquaintance, this is typically outside licensing regimes. However, if lending is carried out habitually or as a business — repeated loans to multiple borrowers for a return — state moneylending or money-lenders acts may apply, which can require the lender to hold a licence and can cap the interest rate that may be charged. Whether a particular lender's activity crosses that line is fact-specific and state-dependent, and should be checked rather than assumed. Core commercial terms: identification of lender and borrower, the principal amount and the date and mode of disbursement, the interest rate (if any) and how it accrues, the repayment schedule (lump sum or instalments) and final due date, any security or guarantee offered, and the consequences of default including any right to demand immediate repayment of the outstanding balance. When to use this agreement: for a personal loan between family members, friends, or acquaintances that is not being extended through a bank or NBFC, where the parties want a clear, dated, signed record of the amount, terms, and repayment obligation. Common drafting mistakes: disbursing or repaying Rs 20,000 or more in cash in violation of Sections 269SS/269T, leaving the agreement unstamped, failing to specify a concrete repayment schedule, and setting an interest rate without considering whether the lending pattern could be characterised as a moneylending business requiring a licence under state law.

Information to customize

• Name of the lender

• Address of the lender

• Name of the borrower

• Address of the borrower

• Principal loan amount (INR)

• Mode of disbursement (bank transfer / cheque / UPI)

• Annual interest rate (if any)

• Repayment schedule

• Final repayment due date

• Security or guarantee offered, if any

• Date of agreement

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Frequently asked questions

Can I lend or receive a personal loan in cash in India?

Only below Rs 20,000. Section 269SS of the Income Tax Act 1961 prohibits accepting a loan of Rs 20,000 or more in cash, and Section 269T imposes the same restriction on repayment. Amounts at or above that threshold must move through a bank account, cheque, or another prescribed electronic mode. Breaching this can trigger a penalty equal to the full amount of the loan under Sections 271D and 271E, so it is safest to route the entire loan and all repayments through banking channels regardless of amount.

Does a loan agreement between individuals need to be stamped?

Generally yes — a loan agreement is typically a chargeable instrument under the Indian Stamp Act 1899, but the applicable rate and stamping procedure vary by state. Confirm the requirement in the state where the agreement is signed before relying on it, since an unstamped or insufficiently stamped document can face difficulties being used as evidence.

Is there a maximum interest rate I can charge on a personal loan in India?

There is no single national cap for a one-off loan between individuals, though courts can strike down or reduce an interest rate found to be unconscionable. If lending becomes a regular or business-like activity rather than an occasional accommodation, state moneylending or money-lenders acts may apply and can require a licence and impose an interest rate ceiling — check the position in your state if you lend regularly.

Do I need to register this loan agreement?

A simple loan agreement between individuals is not typically compulsorily registrable in the way a property transfer document is, but registration requirements can depend on the state and on whether the document also creates security over immovable property. Check with a professional in your state if the loan is secured against property.

Are there any GST implications on a personal loan between individuals?

Lending money and charging interest is generally treated as an exempt supply under GST law, so a genuine personal loan between individuals is typically outside the scope of GST. This changes if the lending is carried out as an organised business activity, which is a separate question from the income tax cash-transaction rules described above.

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