Tax on P2P Lending and Invoice Discounting Returns in India (AY 2026-27)

Peer-to-peer lending apps and invoice discounting platforms have pulled in a lot of retail money by advertising returns of 10-14% a year, against roughly 7% on a bank fixed deposit. What the marketing pages rarely show is the after-tax number.

These returns are interest, not capital gains. That single fact decides everything else: the rate you pay, the deductions you cannot claim, and what happens when a borrower defaults. This guide covers how platform lending income is taxed for FY 2025-26 (AY 2026-27), what the Income Tax Department already knows about it, and how to report it without inviting a notice.

What Counts as Platform Lending Income

The rules in this guide apply to returns from:

• RBI-regulated NBFC-P2P platforms where you lend directly to individual or small-business borrowers
• Invoice discounting and receivable financing platforms, where you fund a company's unpaid invoice at a discount and are repaid the face value
• Deposit-like products marketed by fintech apps that are in substance a loan to a borrower or an NBFC

Listed bonds bought on an online bond platform are taxed differently - those follow the bond rules covered in our guide to bonds and debentures taxation.

The Core Rule: This Is Interest, Taxed at Your Slab Rate

Money you earn for lending is interest, taxable under Income from Other Sources at your normal slab rate. There is no concessional rate, no indexation, no long-term holding benefit, and no Rs 1.25 lakh exemption. A 12% yield in the hands of a taxpayer in the 30% bracket is a 8.4% pre-cess return, and roughly 8.25% after the 4% health and education cess.

The head of income and the treatment are identical under the old and new regimes; only your slab rate changes.

Invoice discounting: "discount" is still interest

On an invoice discounting platform you may pay Rs 9,70,000 for an invoice that repays Rs 10,00,000 in 90 days. The Rs 30,000 difference is described as a "discount", but for tax purposes it is interest on money lent, assessable under Income from Other Sources at your slab rate. Calling it a discount, a yield, or a payout does not convert it into capital gains.

Deductions You Cannot Claim

This is where most platform lenders are surprised.

Section 80TTA and 80TTB do not apply. Section 80TTA covers savings account interest, and 80TTB covers deposits with banks, co-operative banks and the post office for senior citizens. A loan to a borrower through a P2P platform is none of those. A 65-year-old who would have enjoyed a Rs 50,000 deduction on an FD gets nothing on the same amount routed through a lending app.

Principal you lose to a default is not deductible. For an individual lender, a bad debt is a capital loss of principal with no home in the Income Tax Act. It is not a business bad debt under Section 36(1)(vii) (you are not in the business of money lending), not a capital loss (the loan is not a transferred capital asset), and it cannot be set off against interest earned from other borrowers. You are taxed on the interest you received while absorbing the principal loss entirely out of your own pocket.

Platform fees are a grey area. Section 57(iii) allows a deduction for expenditure laid out wholly and exclusively for earning income taxable under Other Sources, and a platform's explicit service fee arguably qualifies. If you claim it, restrict the claim to fees separately charged and shown on your statement, keep that statement, and be prepared to defend it.

Worked example: what a 12% P2P portfolio actually returns

Priya, a salaried taxpayer in the 30% bracket, puts Rs 5,00,000 into a P2P platform for a full financial year at an advertised 12%.

Priya's real post-tax return is about 4.7%, not 12% - below a plain fixed deposit. The gap is not the tax rate; it is that the default is taxed as though it never happened.

TDS: Why Your Form 26AS May Show Nothing

Section 194A obliges the payer of interest to deduct TDS, but who that payer is varies by platform.

• P2P lending: the borrower is usually an individual or HUF, and an individual is only obliged to deduct TDS under 194A if they were subject to tax audit in the preceding year. Most retail borrowers are not, so no TDS is deducted at all on a large share of P2P interest.
• Invoice discounting: the paying company is generally liable to deduct at 10% under Section 194A, and many platforms do this centrally. Some structure the payout through an assignment or an NBFC instead, which changes who deducts.
• Fintech deposit-style products: if an NBFC is the borrower, TDS applies at 10% under Section 194A once interest crosses the FY 2025-26 threshold of Rs 10,000 for non-bank payers. (The higher Rs 50,000 threshold, or Rs 1,00,000 for senior citizens, applies only to banks, co-operative banks and the post office.)

Zero TDS is not zero tax - it only means nobody paid it in advance on your behalf. Interest that never appears in Form 26AS is still fully taxable, and the AIS often picks it up anyway through the platform's financial transaction reporting. Cross-check your platform's annual interest statement against your AIS before filing, and flag genuine mismatches through AIS feedback rather than silently adopting the AIS number.

Advance Tax: The Trap for Salaried Lenders

Your employer computes TDS on your salary only. It has no idea you are earning Rs 60,000 of P2P interest, unless you declare that income to it in Form 12BB.

If your total tax liability after TDS exceeds Rs 10,000 for the year, you owe advance tax in four instalments (15 June, 15 September, 15 December and 15 March). Miss them and interest runs under Sections 234B and 234C until you pay.

Two practical fixes:

1. Declare the interest to your employer so it is folded into your monthly salary TDS. Simplest option for most salaried lenders.
2. Pay advance tax yourself on the interest accrued each quarter. See our advance tax rules and due dates guide for the instalment percentages.

Accrual vs Receipt: When to Report

Interest under Other Sources can be offered to tax on either an accrual or a receipt basis, provided you follow one method consistently year after year.

On P2P platforms EMIs credit interest monthly, so the two largely coincide. Invoice discounting is different: a 90-day invoice funded in February and repaid in May straddles two financial years.

• Accrual basis: split the discount across FY 2025-26 and FY 2026-27 in proportion to days.
• Receipt basis: tax the whole amount in FY 2026-27, when the invoice repays.

Either is acceptable, but switching between them year to year to defer income is not, and a platform statement that reports on the opposite basis to your return is exactly the kind of mismatch that generates a Section 143(1) intimation.

Which ITR Form to File

Platform lending income by itself does not push you into a complicated form.

• ITR-1 works if you are a resident with total income up to Rs 50 lakh from salary, one house property and other sources (including this interest), and you have no capital gains beyond the limited LTCG that ITR-1 now permits.
• ITR-2 is needed if you also have capital gains from stocks or property, more than one house property, foreign assets, or total income above Rs 50 lakh.

Report the amount under Income from Other Sources, in the "Interest from other sources" or "Any other income" row - not under savings bank interest, which would wrongly pull it into an 80TTA claim. 49Tax picks up your salary and TDS details straight from your Form 16 and prompts you separately for interest that no employer reported, so platform income does not quietly fall out of the return.

Lending systematic enough to amount to a money-lending business becomes business income in ITR-3, where bad debts are deductible - but that is a high bar, it brings bookkeeping and possible audit obligations, and it is not a position to adopt casually on a retail portfolio.

Common Mistakes

Treating the payout as capital gains. It is not a transfer of a capital asset. There is no Rs 1.25 lakh exemption and no 12.5% rate.

Reporting only the net cash received. Gross interest is taxable. Netting defaults out of it understates income against an AIS figure the department can already see.

Forgetting the money that is still stuck. Interest credited to your platform wallet is taxable even if you have not withdrawn it to your bank account. Access is not the test; the credit is.

How Platform Lending Compares After Tax

For a taxpayer in the 30% bracket:

The tax code does not reward you for taking credit risk. It taxes the upside every year at your full slab rate and gives you nothing back on the downside, which is the opposite of how equity and even debt funds are treated.

Key Takeaway

Before you compare a lending platform to an FD, run the yield through two filters: your slab rate, and your realistic default rate - then remember that the defaults are not deductible. A 12% advertised return in the 30% bracket with 3% defaults is roughly a 6% real return. Whatever you do lend, declare the interest to your employer or pay advance tax each quarter, report the gross figure under Income from Other Sources, and reconcile your platform statement against your AIS before filing.