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Rule 251 - Loan Interest Calculation | KartavyaDesk

GFR 2017

Original Rule Text

(2) A loan shall bear interest for the day of payment but not for the day of repayment. Interest for any shorter period than a complete year shall be calculated as follows, unless any other method of calculation is prescribed in any particular case or class of cases. Number of days X Yearly rate of interest ------------------------------------------------- 365 (366 in case of a leap year) Rule 252 (1) Procedure to be followed for recovery of loans and interest thereon and Grant of moratorium. The instructions issued by the Ministry of Finance from time to time prescribing the interest rates and other terms and conditions of loans to State and Union Territory Governments, Local Bodies, Statutory Corporations, financial, industrial and commercial undertakings in the Public Sector shall be strictly followed. Rule 252 (2) The recovery of loans shall ordinarily be effected in annual equal installments of principal together with interest due on the outstanding amount of principal from time to time. The repayment and interest installments may be rounded off to the nearest rupee subject to final adjustment at the time of payment of last installment of principal and/or interest. Rule 252 (3) A suitable period of moratorium towards repayment might be agreed to in individual cases having regard to the projects for which the loans are to be utilized. However, no moratorium shall ordinarily be allowed in respect of interest payable on loans. Rule 253 (1) Loans to State and Union Territory Governments, Local Bodies, Statutory Corporations, Public Sector Undertakings, etc. Loans shall ordinarily be sanctioned at the normal rates of interest prescribed by Government for the particular category of the loanee. In cases where the normal rate is considered too high and a concession is justified, it shall take the form of direct subsidy debitable to the grants of the sanctioning authority. In such cases interest shall, however, be paid by the borrower in the first instance at the normal rates and subsidy shall be claimed separately. Rule 253 (2) Agreements and other documentation. (i) In the case of loans to parties other than State Governments and wholly owned Government Companies, a loan agreement specifying all the terms and

What This Means

Rule 251 of the General Financial Rules (GFR) 2017 deals with how interest is calculated on loans provided by the government. Essentially, it states that interest is charged from the day the loan is disbursed (paid out) but not for the day it's repaid. This means you only pay interest for the time you actually have the money. The rule also specifies the formula for calculating interest for periods less than a year: (Number of days * Yearly interest rate) / (365 or 366 for leap years). However, this formula can be overridden if a different calculation method is specified for a particular loan or category of loans.

Rules 252 and 253 build upon this by outlining the procedures for recovering loans and interest, including the possibility of a moratorium (temporary suspension of payments) on principal repayment, though not usually on interest. These rules also address loan terms for State and Union Territory Governments, Local Bodies, Statutory Corporations, and Public Sector Undertakings. They emphasize adherence to Finance Ministry guidelines on interest rates and other loan conditions. If a concession is granted on the interest rate, it's typically done through a subsidy, where the borrower initially pays the normal rate and then claims the subsidy separately.

These rules affect all government departments and agencies involved in providing loans, as well as the recipients of those loans, ensuring transparency and consistency in loan management and recovery. Understanding these rules is crucial for government employees involved in financial administration and for anyone preparing for government exams.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Interest is charged from the day of loan disbursement but not the day of repayment.
  • •The standard formula for calculating interest for periods less than a year is: (Number of days * Yearly interest rate) / (365 or 366).
  • •The Ministry of Finance's instructions on interest rates and loan terms must be strictly followed.
  • •Moratoriums on principal repayment may be granted in specific cases, but usually not on interest payments.
  • •Interest rate concessions are generally provided through subsidies, with the borrower initially paying the normal rate.

Practical Example

The Ministry of Rural Development provides a loan of ₹50,00,000 to the Zilla Parishad of Sitapur for a rural electrification project. The loan carries an annual interest rate of 8%. The loan is disbursed on March 15, 2024, and the first installment is repaid on September 30, 2024. According to Rule 251, interest will be calculated from March 15th to September 29th (excluding September 30th). The number of days is 199 (March 17 + April 30 + May 31 + June 30 + July 31 + August 31 + September 29). The interest for this period would be calculated as (199 * 8) / 366 * 50,00,000 = ₹217,213.11. The Zilla Parishad must adhere to the repayment schedule and interest rates as prescribed by the Ministry of Finance, as per Rule 252.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What happens if the loan agreement specifies a different method for calculating interest?▼
Rule 251 allows for alternative interest calculation methods if they are specifically prescribed in the loan agreement or for a particular class of cases. In such instances, the method outlined in the agreement takes precedence.
Can a moratorium be granted on interest payments?▼
While a moratorium on principal repayment is possible in certain situations, Rule 252(3) states that a moratorium is ordinarily not allowed on interest payable on loans. However, exceptions might exist based on specific circumstances and approval from the Ministry of Finance.
How are interest rate concessions handled?▼
Rule 253(1) states that if a concession on the normal interest rate is justified, it should be provided as a direct subsidy. The borrower initially pays the normal interest rate, and then the sanctioning authority provides a subsidy to offset the difference.
What documentation is required for these loans?▼
Rule 253(2) emphasizes the importance of a loan agreement specifying all the terms and conditions, especially for loans to parties other than State Governments and wholly owned Government Companies. This ensures clarity and accountability.
Where can I find the latest interest rates prescribed by the Ministry of Finance?▼
The latest interest rates and other terms and conditions of loans are issued by the Ministry of Finance from time to time. Government departments should refer to these official notifications and circulars for the most up-to-date information.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Rule 251 of the General Financial Rules, 2017, for which day is interest charged on a government loan?

Related Rules

Rule 271General Financial Rules 2017 (amended July 2024) - Rule 271 - Chapter 10Rule 109General Financial Rules 2017 (amended July 2024) - Rule 109Rule 146General Financial Rules 2017 (amended July 2024) - Rule 146 - Chapter 6Rule 169General Financial Rules 2017 (amended July 2024) - Rule 169 - Chapter 6Rule 215General Financial Rules 2017 (amended July 2024) - Rule 215 - Chapter 6

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