Interest income

This query is : Resolved

Share Report Follow Query Ask a Query

Querist : Anonymous

Querist : Anonymous (Querist)

11 May 2017 How to dealt with interest earned on money lent to relatives and friends while furnishing return of income!

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
Follow

11 May 2017 If it is a recurring affair, show under the head 'income from business',else show under 'income from other sources'.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

15 May 2017 The amount lent in the form of cash to relatives,but to bring the same in records want to furnish the same in ITR. Can we proceed to declare amount lent in cash?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

01 August 2024 When dealing with interest income from money lent to relatives or friends, and reporting it in your Income Tax Return (ITR), you need to follow certain guidelines. Here's how you should proceed:

### **1. Interest Income Reporting**

1. **Interest Earned**:
- **Report as Income**: The interest earned on money lent to relatives or friends must be declared as "Income from Other Sources" in your ITR. This is regardless of whether the recipient of the loan is a relative or friend.

2. **Documentation**:
- **Maintain Records**: Ensure that you have proper documentation of the loan agreement, including the amount lent, the interest rate, and the repayment terms. This helps in substantiating your income claim in case of queries from tax authorities.

3. **Interest Calculation**:
- **Gross Interest**: Report the gross amount of interest earned before any deductions or adjustments.

### **2. Reporting Cash Transactions**

1. **Cash Transactions**:
- **Documentation and Reporting**: While cash transactions are generally discouraged due to the lack of traceability, if you have lent money in cash, ensure that you document the transaction clearly. This includes having a written agreement or record that shows the amount lent, the date, and the terms.

2. **Cash Transactions Limits**:
- **Compliance**: Be aware of the limits on cash transactions under Section 269ST of the Income Tax Act, which restricts cash receipts exceeding ₹2 lakh in a single transaction or in aggregate in a financial year from a single person. If the amount lent is above this limit, it could attract scrutiny.

3. **Declaration in ITR**:
- **Disclosure**: Even if the loan was given in cash, you should declare the interest earned from that loan as income in your ITR. You can mention the principal amount lent in the income details section, but ensure that the interest income is accurately reported.

### **3. Additional Considerations**

1. **Interest Deductibility**:
- **Interest Expense**: If you have borrowed money to lend to others and are paying interest on the borrowed amount, you might be able to claim a deduction for interest expense under "Income from Other Sources" if it directly relates to the income earned from lending.

2. **Tax Implications**:
- **Income Tax**: Interest income is taxable and must be included in your total income for tax purposes. It is taxed according to the applicable income tax slab rates.

3. **Loan Recovery**:
- **Income Verification**: Ensure that the loan recovery and interest payment details are verifiable. Keep a record of all transactions and repayments.

### **Example for ITR Filing**

**Assume the following details**:
- **Loan Amount**: ₹1,00,000
- **Interest Rate**: 10% p.a.
- **Interest Earned**: ₹10,000

**How to Report**:
1. **In Your ITR**:
- **Income from Other Sources**: Report ₹10,000 as interest income under "Income from Other Sources".
- **Documentation**: Keep all relevant documents such as loan agreements and records of payments for reference.

2. **Record-Keeping**:
- **Loan Agreement**: Have a written agreement documenting the loan details.
- **Payment Records**: Maintain records of interest payments received.

### **Summary**

- **Declare Interest Income**: Report the interest earned on the loan under "Income from Other Sources" in your ITR.
- **Document Transactions**: Maintain proper documentation of both the loan and the interest received.
- **Compliance**: Be mindful of the cash transaction limits and ensure that all transactions are compliant with tax regulations.

For any specific queries or complex situations, consulting a tax professional can provide tailored guidance and ensure compliance with the latest tax laws.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now