Imputed interest refers to interest that is considered by tax authorities as having been paid or received even though no actual interest payment was made. It commonly applies in situations where the stated interest rate on a loan or financial instrument is considered insufficient or below market rates.
An installment sale is a sales arrangement where the buyer agrees to make payments over time rather than paying the full amount upfront. This type of sale is commonly used in real estate transactions and for higher-priced goods or services.
When no interest or low interest is provided in an installment sale agreement, part of each payment will be treated as interest. The amount treated as interest is referred to as unstated or imputed interest.
