19 February 2017
Dear Sir
I am having salary income and income from other sources as an individual capacity . Gross Total comes around approx Rs 580000.
I just want to know whether I can claim deduction of interest paid on personal loan. I have borrowed personal loan and I am paying interest approx an average of Rs 4500.
I am having confusion that when I am earning interest income of Rs 90000 above exemption limit.
Can I adjust interest paid against my interest received income.
plz clarify
01 August 2024
You’re considering the deduction of interest paid on a personal loan against your interest income. Let’s break this down to clarify the tax implications:
### **Interest Paid on Personal Loan**
1. **Personal Loan Interest**: - Interest paid on a personal loan, used for personal expenses, is **not deductible** under the Income Tax Act. Deductions for personal loan interest are generally not allowed unless the loan is used for specific purposes, such as buying or constructing a house (where it may qualify under Section 24(b) for home loan interest).
2. **Income from Other Sources**: - Interest earned on savings accounts, fixed deposits, etc., is taxable under the head "Income from Other Sources."
### **Adjustment of Interest Paid Against Interest Income**
Since you have interest income from other sources and you are paying interest on a personal loan, here is how it should be treated:
- **Interest Income**: - Interest income of ₹90,000 from other sources is taxable. You will need to report this income in your tax return.
- **Interest Paid on Personal Loan**: - The interest paid on a personal loan cannot be claimed as a deduction against your interest income. It cannot be set off against your interest income as it does not qualify under the provisions of the Income Tax Act.
### **Tax Treatment**
1. **Interest Income**: - You need to report the full interest income (₹90,000) in your tax return. This is taxable under the head "Income from Other Sources."
2. **Interest Expense on Personal Loan**: - Since the personal loan interest is not deductible, it will not impact your taxable income directly. It will not reduce your interest income from other sources.
### **Reason for Non-Deductibility**
- **Personal Loan Interest**: - The Income Tax Act does not allow a deduction for interest on personal loans because it is considered a personal expense and not incurred for earning taxable income. The Act provides specific deductions for interest on loans used for business or for purchasing or constructing a residential property.
### **Summary**
- **Interest Income**: Taxable and reported in full. - **Interest Paid on Personal Loan**: Not deductible.
Thus, you will need to pay tax on the total interest income you have earned, and the interest paid on your personal loan will not affect this tax liability.
CAclubindia
