Ok here is the breakdown ,
So According to the Authority any loan that is acquired supposedly free, the KRA will deem it to have earned interest at the rate of 16% as indicated for the months on Jan to March,
Now on this supposedly free loan, the KRA will calculate a deemed interest of 16% of the sum and require that the lender withhold a 15% of the interest per month to be paid to KRA by the 20th day of the next month of calculation as withholding tax on the interest part
EXAMPLE: James given a free loan of Kshs 5,000,000
INTEREST RATE PER MONTH: 16% divided by 12months=1.333% p.m reducing balance
ASSUMING A FREE LOAN OF : Kshs 5,000,000
THE DEEMED INTEREST FOR JANUARY WILL BE: Kshs 5,000,000*1.333/100=Kshs 66,500
WITHHOLDING TAX TO BE PAID BY 20th FEBRUARY: 15% of 66,500=Kshs 9,975
