Deduction of interest expense from other source income

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2014 Experts,

Mr. A is paying interest on Bank OD (over draft).

And he has income of interest from a pvt. ltd. co.

Interest he earns from the co. is higher then the interest he pays on OD.

Now my question is, can he claim interest expense on OD from income from other sources (i.e. from interest income)

Thanks

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

16 September 2014 what is the purpose for the OD?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

16 September 2014 If the assessee has any business income only then he can claim interest expenses as deduction.

Upgrade to CAclubindia Pro. Subscribe Now!

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2014 Dear Mr. Sanjay, can you please mention the section or reference where it is mentioned so.

Thanks

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

16 September 2014 Dear Devanand ji...Interest paid against OD can not be claimed by an Individual not having Business Income/Loss. Nikhil Ji asked purpose of OD as I think he believed that it was (O/D Facility) for business purpose.

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2014 Thanks Sanjay ji.

Can you please share with me such clause/reference in the IT act, if any.

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

16 September 2014 Dear querist,

my question still stands..what is the purpose of the OD.

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2014 Dear Nikhil ji,

Purpose is to make profit, by paying less interest on OD and getting higher interest from the co.

As per my view it should be allowed, as the interest expense is incurred to earn taxable income.

Upgrade to CAclubindia Pro. Subscribe Now!

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

16 September 2014 if you are able to exhibit that this OD was taken to give loans to private ltd company to earn interest income, you can claim deduction under section 57.

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2014 Thank you Nikhil ji..........

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

16 September 2014 you are welcome friend......

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

16 September 2014 Activity as mentioned above comes under the purview of business of lending money. As stated earlier also interest can be claimed against business Income. Here the income earned from money lending is business income and therefore claim deduction of OD interest is eligible.

Upgrade to CAclubindia Pro. Subscribe Now!

Nikhil Kaushik

Nikhil Kaushik (Expert)
Follow

16 September 2014 not necessarily Sanjay. for eg, borrowing money to invest in lets say debentures wont come under moneylending,

DrSANGITA PHD MBA(usa)CACSCWA

DrSANGITA PHD MBA(usa)CACSCWA (Expert)
Follow

17 September 2014 Sec 57(iii) Of Income Tax Act Says as Under

Any other expenses for earning income [ Sec. 57(iii)] :if the following 4 basic conditions are satisfied :

i . The expenditure should be incurred
solely for earning such income
ii. It should not be in the nature of
capital expenditure
iii.Is should not be in the nature of
personal expense.
iv. Is should be incurred in the relevant
accounting year.

To all my Highly Learned Friends Here, Check Sec 57(iii) of the Income Tax Act
& also See the case Law of Supreme Court
CIT v/s Rajendra Prasad Moodi (1978)115 ITR 519 SC

& your Queries & Doubts shall get Cleared.

Interest Expenditure which the Querist has asked is allowable as Expenditure to him while calculating his Taxable Income

Message likes : 1 times