Interest on loan against fixed deposit

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JAYAKUMAR.M.G

JAYAKUMAR.M.G (Querist)

11 July 2012 Sir
While computing the taxable income inrespect of interest whether the amount of interest paid to bank for loan taken against FD is deductible?. If deductible only the net income earned as interest is to be shown?. Pls note that the Bank given Form 16A for the total interest without considering the interest charged by them for Loan against FD. pls advice
Thanks& RGDS

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)

11 July 2012 1. Only those expenses which are incurred to earn the income are allowed to be deducted from such income.

2. In this case, the loan was NOT taken to invest in fixed deposits.
Accordingly, interest paid on loan shall NOT be allowed as deduction from interest received on fixed deposits.

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

11 July 2012 Loan interest can't be set off against FD interest vide Supreme Court decision in CIT V Dr. V.P. Gopinathan (248) ITR 449.

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CA Nikhil Bhansali

CA Nikhil Bhansali (Expert)

07 September 2012 Dear Mr. B Chakrapani,

I respect the Decision of Hon'ble SC. We have studied the same principle in Academics and applying in daily Practice.

But, what sec 57 (iii) says expenditure EXPENDED wholly and exclusively for the purpose of making and earning the income is deductible.

In my opinion, the test is to be carried out for what Interest has been expended not the initial purpose. Though fund were borrowed for Capital Project and Interest was suppose to expend on same but in actual it has expended on making and earning interest income on FD.

Hence, Court should take this view and accordingly should give allowance for the same.

With Regards
CA Nikhil Bhansali

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