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As P2P lending platforms are very new in India, what would be the tax treatment of the income from the P2P lending platform for the lenders.

As an individual, will it be added to their income and taxed at marginal rate as per slab (say 20%)? or is it possible to declare it as business/profession income and apply the regular income=revenue-expenses-depreciation model, as there are default risks, which are not present in Fixed Deposits/Bank deposits or debt based mutual funds (debt based mutual funds probably don't count as they are instruments over debt but not debt itself).

  • Do we need to include it as income from other sources even if we have not drawn the amount from the P2P account? For example if we deposit 50K in the P2P account and then invest 5k in 10 different borrower accounts. Once we receive the EMI, we don't transfer it bank into my bank account and either keep it in P2P account or reinvest it. In this case, how the tax treatment should be done? Any Inputs would be appreciated. Thanks! – Hitesn Jul 14 '18 at 10:07
  • @Hitesn, I also had the same question, after a bit of reading and consulting, I found out that the interest accrual is taxable as Dheer mentioned below, even if the money is held at the escrow account and not transfered back to your bank account. – Ironluca Jul 14 '18 at 13:21
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what would be the tax treatment of the income from the P2P lending platform for the lenders.

It needs to be shown as income from other sources and it would be taxed at your tax brackets. Currently there is no provision to show this can capital gains / loss.

is it possible to declare it as business/profession income and apply the regular income=revenue-expenses-depreciation model,

You could; however there would be quite a few caveats, it is best done as a separate entity. Consult a CA.

  • one clarification, you mentioned that it could be declared as business income and best done as a separate entity by which I understand a separate company/concern. Is it possible for an individual to declare it as business income without forming a separate entity/concern – Ironluca Feb 16 '18 at 6:15
  • @Ironluca Yes. Best consult a CA. You have to establish that this is core activity done by individual and hence be treated as business / professional income. If you are salaried and this income is very small compared to the salary, it would be difficult. – Dheer Feb 16 '18 at 10:36

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