Interest loss set off against rent & salary income

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 July 2011 Dear CA Friends,

i have filed case with one bank for charging excess interest against the loan taken two years back in 2009 for 5 lakh out of which i got immediate reversal of 3 lakh in the same year,but for balance 2 lakh i was not able to recover because i lost that case in current year.

POINT TO BE NOTED :
1] I have not claimed this interest as loss in 2009 while filing return as i have filed the case i was expecting to recover full amount.

2] in books of 2008-09 i have shown this 5 lac as claim receivable from bank & 2009-10 return i have shown rs.2 lac receivable as i received 3 lacs in 2009

now my question is

1] can i get set off of that interest loss in current year against my salary and rental income ?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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28 July 2011 The purpose of loan has not been mentioned by you. It is further important to know that against which income the normal interest has been claimed by you.

If we consider, the loan in connection with
your business or profession, then such loss can not be set off against salary income or rental income of the current year.

In case this extra liability of interest has arisen in reference to the loan taken for the property, income of which is assessable under the head IFHP, chances for claiming the interest are based on compliance of conditions mentioned in Section 24.

Querist : Anonymous

Querist : Anonymous (Querist)

28 July 2011 Dear Paras sir,
many thanks for your reply.

Purpose of loan was to purchase some bonds ( under one scheme provided by bank itself), at the time of taking loan on bonds i was earning interest @ 8% and bank was charging interest @ 6% but due to hike in interest at regular intervals bank interest rate gone up upto 12% and i started to incurr loss , so i premature the bonds and filed case against bank.
now currently i do not have any other interest income other than rent & salary.

suppose if i would have earned interest or other income during last year than can i take set off against that income.??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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01 August 2024 In your situation, you're dealing with a situation where excess interest charged by the bank has not been fully recovered, and you are considering the possibility of setting off this interest loss against your other income. Here’s a breakdown of how you can approach this:

### **1. Tax Treatment of Interest Loss**

**Interest Loss Set-Off Against Income:**

1. **Character of Loss**:
- The loss from excess interest charged by the bank is typically considered a capital loss, especially if the loan was taken to purchase bonds or other investments. However, if this loss is treated as a business loss (e.g., if you were in the business of lending or investments and this was part of that business), it could be offset against business income.

2. **Set-Off Against Salary and Rental Income**:
- **Capital Loss**: If the loss is considered a capital loss, it can only be set off against capital gains, not against salary or rental income.
- **Business Loss**: If the interest loss is considered a business loss (e.g., if it was incurred in the course of a business or profession), you can set off the business loss against other sources of income, including salary and rental income.

### **2. Specific Case Considerations**

**In Your Case**:

- **Nature of Loan**: The loan was taken for investment in bonds, so the interest loss is likely to be viewed as related to investments, which typically falls under capital losses unless you are in the business of trading in such instruments.

- **Claim in Previous Years**:
- Since you did not claim the interest loss in the years when it occurred (2008-09 and 2009-10), and you have only recently lost the case, the loss can be tricky to claim in the current year.

- **Set-Off Possibility**:
- **Current Year**: If you have not treated the loan-related interest loss as a business loss and there are no capital gains in the current year, you generally cannot set off this loss against salary or rental income.
- **Previous Years**: If the loss were a capital loss and you had any capital gains in the years you incurred the loss, you could have carried forward the loss and set it off against future capital gains.

### **3. Treatment of Loss in Books**

- **Books of Accounts**: Since you have shown the claim receivable from the bank in your books, you should align your tax treatment with the nature of the transaction and the treatment in your books.

### **4. Filing and Reporting**

- **Tax Return**: You should report the loss according to its nature and ensure compliance with tax laws. If you are unable to set off the loss in the current year, consider carrying forward any capital loss if it was recorded as such.

### **Recommendation**

**Consult with a Tax Advisor**: Given the complexity of your situation, particularly regarding the nature of the loss (capital vs. business) and the years involved, it is advisable to consult with a tax professional. They can provide guidance based on the specifics of your case and ensure compliance with applicable tax laws.

In summary, the ability to set off the interest loss depends on its nature (capital or business loss) and the availability of other income against which it can be set off. If you have no capital gains and the loss is treated as a capital loss, it generally cannot be set off against salary or rental income.

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