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IndiaCA Firm ManagementUpdated: Sep 13, 2026
Direct Answer
A Director Current Account tracks money moving between a director and the company. While a director can lend money to the company freely, the company cannot legally lend money to the director (Section 185). Overdrawn accounts can trigger heavy penalties and Section 2(22)(e) taxes.
The One-Way Street
Many founders treat their private limited company bank account like a personal wallet. This is illegal.
- Director to Company: A director can give an unsecured loan to the company by providing a declaration that the funds are not borrowed.
- Company to Director: Section 185 strictly prohibits the company from giving loans to its directors.
Audit Adjustments
If an auditor finds that a director withdrew Rs 5 Lakhs for personal use, it cannot sit as an asset (Loan to Director) on the balance sheet. It must be adjusted by:
- Processing a bonus/salary (subject to TDS).
- Declaring a formal dividend (subject to tax).
- Reimbursing legitimate expenses backed by bills.