Tax on interest earned from a friend
I had a around 25 lakhs to a land broker for purchase of a land 5 years ago.
Since the land transaction did not materialize, he is returning the entire amount with interest.
1. Will this interest attract capital gain tax?
2. If yes, can I adjust the interest I had paid the bank to pay the initial amount of 25 lakhs
3. Are there ways to reduce the tax burder
Asked 4 months ago in Capital Gains Tax from bangalore, Karnataka
If you have not got any capital assets it will be treated as advance only. And you can adjust the interest paid from interest received
1) This interest will be treated as Income from other sources and not capital gain.
2) Yes you can
3) Claim interest paid from interest received.
Thanks for your answers.
For adjusting interest paid with interest received, do I need to show loan documents related to the investment?
I had taken personal loans which is not directly linked to the investment. However, the purpose of the loan was for this specific investment.
Asked 4 months ago
Loan should be directly linked to investment to claim the expense. As the purpose of the loan is to purchase the investment therefore you can claim it. If you are planning to purchase again, it is better to consider it in cost of such property rather than claiming it now.
The interest will be treated as Income from other sources and you can adjust the interest you paid to the bank from this..
Since the purpose of the loan is linked to the investment, you can claim the interest expenses and reduce it from the interest income.
Hope that clarifies.
The interest will be treated as Income from other sources and not capital gain.
However, if the loan is taken for the purchase of the property, then you can't claim interest expenses against interest income.
If you can prove that loan taken by you is utilised for earning the interest, then it can be claimed as an expense.
No capital gain on interest.
The interest earned shall be taxable as "other sources" income. If the loan was explicitly taken for such payment of 25 lacs, the deduction of interest paid can be claim. Show the net interest income as income from Other Sources.