finance given / taken and Form 15 G

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 April 2011 Can i as an individual give loan and take loan from individuals on interest. is it a business income or income from other source ? what are the conditions for it to be business income ? Also, if my net interest income is about 3+ lac after paying interest to individual from whom i have taken loan ( and there is no other income ) and total tax liability is about 15000 or so which i have deposited in tax or paid ( 7000 from Bank interest TDS + balance paid ) so can i issue form 15 G to the person from whom i have advanced loan and can i ask them not to deduct tax on my interest income as most of the income is going in paying the interest. I do not want to go to ito for applying lesser tax rate . pls adv what is the solutions.

Ratan Sharma

Ratan Sharma (Expert)
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21 April 2011 If it is the regular feature of assessee having income from interest then it is the business income. If the assessee is involved in any other business but invested or advanced some money then it is from other sources.
Once the income exceeds maximum marginal amount chargeable to tax then you can not issue Form 15G whether there is any tax liability or not.

Querist : Anonymous

Querist : Anonymous (Querist)

22 April 2011 Actually we have issued form G not knowing this in the past so what is the implication now as it is under scrutiny

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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24 July 2024 Let's address your queries step by step:

### 1. Giving and Taking Loans as an Individual:

- **Giving Loan (Lender):** If you lend money to individuals and charge interest on it, the interest income you earn will generally be considered as "Income from Other Sources" under the Income Tax Act, 1961. It is not typically categorized as business income unless lending money is your primary business activity and you engage in it regularly and systematically.

- **Taking Loan (Borrower):** If you borrow money from individuals and pay them interest, the interest you pay is deductible as an expense if it is for business or professional purposes. If it is for personal purposes, it is not deductible.

### 2. Conditions for Income to be Business Income:

For interest income to be considered as business income rather than income from other sources, the following conditions should generally be met:

- **Regular and Systematic Activity:** Lending money should be a regular and systematic activity carried out with a profit motive.
- **Organized Business:** It should be conducted in a manner similar to a business operation, with documentation, terms of lending, and proper records.

Given your description, if lending money is not your primary business and you do it occasionally as an individual, the interest income would typically fall under "Income from Other Sources."

### 3. Form 15G for Lower TDS Deduction:

- **Issuing Form 15G:** Form 15G is a declaration under Section 197A of the Income Tax Act to be submitted to the payer (individual from whom you receive interest) if your total income is below the taxable limit and you want them not to deduct TDS (Tax Deducted at Source) on interest income.

- **Conditions for Form 15G:**
- Your total income should be below the taxable threshold after considering all deductions and exemptions.
- Ensure you meet the criteria (e.g., resident individual, no TDS on interest income exceeding Rs. 10,000, etc.).

- **Implication of Issuing Form 15G in the Past:**
- If you inadvertently issued Form 15G in the past without meeting the conditions, it might lead to scrutiny by the tax authorities.
- Ensure you rectify any missteps and comply with the correct procedures going forward.

### 4. Solutions and Next Steps:

- **Review Tax Payments:** Ensure you have correctly calculated and paid your taxes on the interest income received.

- **Consult a Tax Advisor:** Given the scrutiny and potential implications, it's advisable to consult with a tax advisor who can assess your specific situation, guide you on correct tax compliance, and assist in handling any scrutiny or queries from tax authorities.

- **Corrective Measures:** If you issued Form 15G incorrectly in the past, take corrective action by ensuring future compliance and addressing any queries raised during scrutiny.

In summary, while lending money and earning interest income as an individual is generally considered "Income from Other Sources," it's important to comply with tax regulations regarding TDS, Form 15G, and overall tax liability. Consulting with a tax professional will help ensure proper compliance and resolution of any past issues effectively.