Stamp Paper & Legal Documents

Loan Agreement Between Individuals: Clauses, Stamp Paper and Validity

A loan agreement between friends should record the amount, interest, repayment dates and default terms, be stamped at your state's rate, and use bank transfers.

Written by Vikram Desai

Published 24 October 2026·6 min read

On this page8 sections

Credsir Stamp Paper & Legal Documents guide cover with a stamp icon

A loan agreement between two individuals is a signed record of how much was lent, at what interest, and when it will be repaid. It does not need registration, but it should be on stamp paper of the value your state charges. Send the money by bank transfer or cheque: the Income-tax Act, 2025 bars taking a loan of ₹20,000 or more in cash.

Key facts

Item	Rule
Registration	Not needed unless the document also mortgages immovable property
Stamp duty	Set by each state; Karnataka charges ₹500 on agreements not covered by another article
Cash limit when taking a loan	Below ₹20,000 (Section 185, Income-tax Act, 2025; earlier Section 269SS)
Cash limit when repaying	Below ₹20,000 (Section 188; earlier Section 269T)
Penalty for breaking the cash rule	Equal to the amount taken or repaid (Sections 450 and 453)
Time to sue for recovery	3 years from the date the loan is made (Article 19, Limitation Act, 1963)

Why put a family loan in writing

An oral loan is a valid contract, but you have to prove it. When a friend stops paying, a court asks three things: was money given, was it a loan rather than a gift, and what did the borrower agree to? A signed agreement answers all three. Combine it with a bank trail and the borrower cannot easily claim the money was a gift or never came.

A written, liquidated debt also opens a faster court route. Order XXXVII of the Code of Civil Procedure, 1908 allows a summary suit on promissory notes and on debts payable under a written contract. In a summary suit the borrower must get the court’s leave before defending.

Clauses a loan agreement should contain

#	Item	Details
1	Parties.	Full names, parents’ names, addresses and PAN or another ID of the lender and borrower.
2	Amount and mode of payment.	The principal in figures and words, the date paid, and the UTR or cheque number.
3	Purpose.	One line is enough, such as medical treatment or a home down payment.
4	Interest.	The rate, whether simple or compound, and when it is paid. If there is no interest, say so plainly.
5	Repayment schedule.	Lump sum on a date, or monthly instalments with the amount and due day. Our EMI calculator gives an instalment for any rate and term.
6	Prepayment.	Whether the borrower can repay early without extra cost.
7	Default.	What counts as default (for example, two missed instalments), penal interest if any, and the lender’s right to demand the full balance.
8	Security.	Post-dated cheques, a guarantor, or gold. If land or a house is offered as security, that is a mortgage and needs its own registered deed.
9	Jurisdiction.	The city whose courts will hear a dispute.
10	Signatures.	Both parties sign every page, with two witnesses giving names and addresses.

Notarisation is optional. It adds proof of identity and date, but it does not replace stamp duty.

Stamp duty on a loan agreement

Stamp duty on agreements is a state subject, and the article that applies depends on how the document is drafted. These are the rates in the two states whose stamp schedules we checked:

State and article	What it covers	Duty
Maharashtra, Article 5(h)(A)(iv)	Agreement creating an obligation with money value, not covered by another article	0.1% of the amount up to ₹10 lakh (minimum ₹100); 0.2% above ₹10 lakh
Maharashtra, Article 5(h)(B)	Agreement not otherwise provided for	₹500
Maharashtra, Article 13	Bond	1% of the amount, minimum ₹500
Karnataka, Article 5(j)	Agreement not otherwise provided for	₹500

For a ₹3,00,000 loan in Maharashtra, Article 5(h)(A)(iv) works out to ₹300. Other states use different schedules. If you are unsure which article applies, the Collector of Stamps can decide the duty before you sign. Maharashtra charges ₹1,000 for this adjudication.

Buy the stamp as an e-stamp certificate in the name of the party paying for it. Our guide to buying e-stamp paper online covers the steps, and our stamp duty by state page lists property rates.

Under-stamping has a cost. Section 35 of the Indian Stamp Act, 1899 keeps an under-stamped document out of evidence until the duty and a penalty are paid, and that penalty can reach ten times the shortfall. States with their own Stamp Acts have similar rules.

Promissory notes

Many lenders also take a demand promissory note. Duty on promissory notes is fixed centrally under Article 49 of Schedule I to the Indian Stamp Act, 1899, and it is small for notes payable on demand. A promissory note payable on demand can be sued on within 3 years from its date (Article 35, Limitation Act).

The cash rule: Sections 185 and 188

From 1 April 2026, Section 185 of the Income-tax Act, 2025 says no person may take a loan of ₹20,000 or more from another person except by account payee cheque, account payee draft, or electronic transfer through a bank account. The ₹20,000 test counts any unpaid earlier loan from the same person too. Section 188 applies the same limit to repayment. It replaced Sections 269SS and 269T of the 1961 Act.

The penalty is equal to the amount accepted (Section 450) or repaid (Section 453). One exception covers cases where both parties have agricultural income and no other taxable income. Interest the lender receives is taxable income for the lender.

Recovering the money if the borrower defaults

Send a written reminder quoting the agreement and the missed dates.
If a cheque from the borrower bounces, send a demand notice within 30 days of hearing about it from the bank. The borrower then has 15 days to pay. After that, a complaint lies under Section 138 of the Negotiable Instruments Act, 1881, which carries up to two years in jail, a fine of up to twice the cheque amount, or both.
Otherwise, send a legal notice demanding repayment by a fixed date. See our legal notice format.
File a civil suit, or a summary suit under Order XXXVII, within the limitation period.

The limitation period is 3 years from the date the loan is made (Article 19). A written acknowledgement of the debt signed by the borrower before that period ends starts a fresh period (Section 18). For large sums or a disputed loan, have a lawyer draft the agreement or the notice.

Frequently asked questions

Is a loan agreement valid without stamp paper?

The contract is valid, but an unstamped agreement cannot be used as evidence until you pay the duty and a penalty. Stamping at the start is cheaper.

Does a loan agreement between friends need to be registered?

No. Registration is needed only if the document creates a mortgage or another right in immovable property.

What stamp paper value is needed for a loan agreement?

It depends on the state and the article that applies. Karnataka charges ₹500 for a general agreement; Maharashtra charges 0.1% of the amount up to ₹10 lakh under Article 5(h)(A)(iv), with a ₹100 minimum.

Can I give a loan of ₹50,000 in cash to a friend?

No. Section 185 of the Income-tax Act, 2025 bars the borrower from accepting a loan of ₹20,000 or more in cash, and the penalty equals the loan. Use a bank transfer or cheque.

Can I charge interest on a personal loan to a friend?

Yes, if the agreement states the rate. The interest is taxable income for you. States have money-lending laws for people who lend as a business, so check yours if you lend regularly.

How long do I have to recover a loan given to a friend?

Three years from the date the loan was made. A signed acknowledgement from the borrower within that time restarts the period.

Can a loan agreement be written in Kannada or another language?

Yes. Any language both parties understand works, and the stamp duty is the same.

Sources

Income-tax Act, 2025, Sections 185, 188, 450, 453 — Gazette text via ICAI (checked 16 Sep 2026)
Section 269SS — Income Tax Department (checked 16 Sep 2026)
Maharashtra Stamp Act, Schedule I, article-wise, updated 22 July 2026 — IGR Maharashtra (checked 16 Sep 2026)
Maharashtra Stamp Act, section-wise (Section 31 adjudication) — IGR Maharashtra (checked 16 Sep 2026)
Karnataka Stamp Act, 1957, as amended by Act 04 of 2024 — DPAL Karnataka (checked 16 Sep 2026)
Indian Stamp Act, 1899 (Section 35, Schedule I Article 49) — Allahabad High Court (checked 16 Sep 2026)
Code of Civil Procedure, 1908, Order XXXVII — India Code (checked 16 Sep 2026)
Limitation Act, 1963 — India Code (checked 16 Sep 2026)
Section 138, Negotiable Instruments Act, 1881 — Indian Kanoon (checked 16 Sep 2026)