Guide to Taxation on P2P Lending: What Lenders Should Know

Peer-to-peer (P2P) lending has gained significant traction in recent years as an alternative option offering attractive returns. However, understanding the tax implications is crucial for lenders to make informed decisions while filing their tax returns.

Taxation on Interest Earned

In India, the interest earned from P2P lending is considered taxable income and must be reported under the head "Income from Other Sources" on your tax return. The interest is added to your total income and taxed according to the applicable income tax slab rates.

P2P platforms typically provide lenders with an annual statement detailing the total interest earned. This information is crucial for accurately reporting your total income to the Income Tax Department. Ensure you keep these records for reference during tax filing. Per Annum’s website and app have inbuilt features to track the current value of your portfolio and interest income. Ready reports are available and can be downloaded at any time.

Deductible Losses

The inherent risk of P2P lending is borrower default. Fortunately, losses incurred due to defaults can be used to offset your taxable income as they are treated as capital losses. To claim this deduction, you need to demonstrate that the loan is irrecoverable, meaning all efforts to recover the loan have failed. Detailed records of defaulted loans and attempts to recover them should be maintained, as proper documentation is essential if the Income Tax Department requires evidence to substantiate your claim.

Per Annum is dedicated to reducing your losses, by onboarding borrowers who are among the top 2% credit seekers in the country.

Accurate reporting of interest income earned from P2P lending is essential to avoid penalties from the tax authorities. Ensure you include all relevant earnings and deductions in your tax return. For interest income earned from P2P lending, report it under the head "Income from Other Sources." For any losses due to defaults or platform fees, ensure they are properly documented and reported.

If you still need more clarification regarding the taxation on P2P Lending, feel free to contact your dedicated Relationship Manager.