Income from other source

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 July 2013 Dear Sirs,

Please reply for the following query considering the below facts.
1. Interest Income Rs.10,00,000/-
2. Interest paid on Overdraft Rs.5,00,000/-

As per assess, Assess took the OD for earn some extra interest. He wants to adjust the interest exp. from interest income. He want to pay tax on Rs.5,00,000/- (Rs.10,00,000-Rs.5,00,000)

My contention: Interest income taxable under the head “Income from other source” therefore we should not allow interest on OD as a exp., we should not deduct it from income. But assess contention that he took OD for earn this interest income, principal of nature of justice, exp. should be deduct from income.

Please advise on the above matter in the light of Income tax provisions.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
Follow

18 July 2013 If overdraft was taken for earning above income then it is allowed to deduct from the income earned.

Querist : Anonymous

Querist : Anonymous (Querist)

18 July 2013 Sir, Individual earn this income and taxable in the head of “Income from other source”…as per my knowledge, in the head of other source, we cannot deduct any exp.

Please suggest provision…

Upgrade to CAclubindia Pro. Subscribe Now!

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
Follow

18 July 2013 As per sec 57 if exp is incurred to earn any taxable income chg to tax under head income from other source then such exp allowed to be deducted.

CA PAWAN SETHI

CA PAWAN SETHI (Expert)
Follow

18 July 2013 Agree with Mr. Tushar. you can deduct intt on OD from your interest income. Section 57

Querist : Anonymous

Querist : Anonymous (Querist)

18 July 2013 I made FDR with bank and earn interest Income. I need some money between FDR periods. Bank gives me overdraft facility in my account under the lien FDR. I paid interest on overdraft.
Please advise, can I deduct overdraft interest from my interest income ??

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

31 July 2024 Yes, you can generally deduct interest paid on an overdraft facility that is secured by a fixed deposit (FD) from your interest income earned on that FD, subject to certain conditions. Here’s how it works and the considerations involved:

### **Deductibility of Overdraft Interest:**

**1. Purpose of the Overdraft Facility:**
- **Secured by FD:** If you have taken an overdraft facility from the bank secured by your FD and paid interest on that overdraft, you can typically claim the interest paid on this overdraft as a deduction against the interest income earned on the FD.

**2. Nature of Income:**
- **Interest Income:** The interest earned on the FD is categorized under "Income from Other Sources" in your tax return.

**3. Deductibility of Overdraft Interest:**
- **Deduction Under Section 57:** Under Section 57(iii) of the Income Tax Act, you can deduct expenses incurred for earning income under the head "Income from Other Sources." Interest on overdraft taken against an FD falls under this provision as it is an expense directly related to earning the interest income from the FD.

**4. Conditions:**
- **Documentation:** Ensure you maintain proper documentation of the overdraft facility, including the loan agreement and the interest payments made. The documentation should clearly show that the overdraft was secured by the FD and the purpose for which the overdraft was used (if applicable).
- **Direct Connection:** The interest on the overdraft should be directly related to the FD interest income. If the overdraft is used for purposes unrelated to the FD interest, the deduction may not be allowable.

### **Summary:**

- **Deductibility:** You can deduct the interest paid on an overdraft facility against the interest income from an FD, provided it is directly related to earning that income.
- **Documentation:** Ensure proper documentation and justification for the overdraft facility and the interest paid.
- **Tax Reporting:** Report the FD interest income and claim the overdraft interest deduction in your tax return to reduce your taxable income from the FD.

For complex situations or if you need specific advice, consulting a tax advisor or accountant is advisable to ensure compliance with tax laws and accurate reporting.