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Interest deduction/setoff

Rohit Tulshyan (RTProfessionals) (333 Points)

23 September 2013

Dear members,

An assesse has earned interest income of rs. 80000 which is chargeable under the head IOS.

Now, the same Assessee has incurred Interest expenses of rs. 60000. can he claim expense of Rs. 60000 u/s 57 or any othersections.

In a nutshell, how can he claim deduction of such amount. Or should the interest income be shown directly as 20000 only.

Thank You.

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10 Replies

Mihir (Wealth Manager) (5293 Points)
Replied 23 September 2013

If the assessee is an individual, he can claim deduction of interest charges in case of home loans, but the income earned as interest shall be fully taxable unless 80TTA applies wherein he can claim 10K deduction.

Deepak Gupta (CA Student) (15922 Points)
Replied 23 September 2013

In view of Supreme Court’s decision in CIT v. Dr. V.P. Gopinathan [2001] 248 ITR 449, such set-off is not allowed.
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Hence, the assessee is to be assessed on the gross amount of interest received by him.

Anuj jain (CA Final Student) (163 Points)
Replied 23 September 2013

but in my view, expenses incurred in relation to taxable income is fully allowed.

Prashant Kini (Article Assistant) (154 Points)
Replied 23 September 2013

Any expenditure not being a capital expenditure wholly and exclusively incurred to earn such income is allowed as deduction u/s 57. In the above case if amount was borrowed for purpose of investing in bank FD and interest of Rs.60000 paid against such loan is allowed as deduction. but if loan taken for any other purpose then no deduction is allowed

Prashant Kini (Article Assistant) (154 Points)
Replied 23 September 2013

Deepak Gupta ji, in case of V P Gopinathan amount was not borrowed for purpose of investing in FD but loan was taken against FD and as such interest was disallowed.

Prashant Kini (Article Assistant) (154 Points)
Replied 23 September 2013

If Rs. 60000 is incurred for earning Rs.80000 then u will have to show full of Rs.80000 in return of income and claim Rs.60000 as deduction u/s 57

Deepak Gupta (CA Student) (15922 Points)
Replied 23 September 2013

Yes, agreed. Interest paid is deductible only if it is incurred for earning a taxable income u/s 57(iii).
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Actually in the original query it was mentioned that the assessee has incurred interest expense and the querist was asking its allowability. By simple reading, I couldn’t make out whether it is incurred for earning a taxable income or otherwise. Hence, I presumed the later one and answered accordingly. Rest has been said by you.