Peer to Peer Lending and Tax Benefits

Benjamin Franklin famously said, “nothing is certain but death and taxes.” Yes, it is that period of year where most of us suffer from ‘forosophobia’- the name for the fear of taxes! We are less than a month away to filing our tax returns and every taxpayer wants to pay less taxes! Even the rich are not immune from this desire ??. Taxes are difficult to avoid but being proactive and strategising to minimize taxes is something anyone can do, regardless of income or net worth. Actually, investing in Peer to Peer (P2P) lending can be an important tool in lowering your taxable income, so you pay less in taxes!

Peer to Peer Lending & Taxation

Yes, you read that well! Investing in Peer to Peer Lending can get you some favourable tax treatment! In fact, 80% of interest derived by a person from money lent through a Peer to Peer Lending platform are exempted from tax. In other words, only 20% of interest income is taxable. The 20% taxable income is then subject to a tax rate of 15%. Thus, your effective tax rate will be only 3% of all the interest income received after all the tax incentives.

For instance, if you received MUR 50,000 in earnings from interest through P2P lending, only MUR 10,000 would be considered taxable income. At a tax rate of 3%, the tax amount on your total interest earnings would be MUR 1,500 only. The MRA Income Tax return sheet was amended in this effect under Section 4.2.1 “Interest derived by a person from money lent through any peer-to-peer lending platform”.

Is P2P Lending not a rewarding asset class? Oh, what is this little voice inside your head saying? ‘What would become of your money if the loan is not repaid by the borrower?’ Well well… as of today, the current default rate at FinClub is at 0.00%. This is largely a result of our robust credit underwriting process which, not only assesses the borrower’s financial capacity but also his/her financial stability and willingness to repay the loan! Actually, out of 2000+ loan applications received so far on FinClub’s platform, only 4% of the loan requests were approved. Yet, it may happen that a borrower is unable to make their repayments due to unforeseen circumstances and, we do have a recovery process in place.

Moreover, fiscal provisions also catered for losses incurred through a P2P Lending Platform. Under section 4.2.3 in the MRA Income Tax returns sheet, you are allowed to deduct any amount lent which has become bad (where a borrower is unable to repay the loan and is under legal recovery process) on a P2P Lending platform, from the interest received through the same P2P lending platform. However, if the losses are incurred from another P2P Lending platform, the same bad debt can be carried forward indefinitely and can be relieved against interest received from the concerned P2P platform over subsequent years

Helping Lenders with their tax filings

While you are responsible for filing and paying your own taxes, at FinClub, to assist you with the proper filling of your income tax returns, at the end of every financial year, we send you an income statement, with details of all the investments made and interests earned from investing in P2P Loans with us. Nevertheless, this information is also readily available on a daily basis through the lender dashboard.

Not registered yet on our platform and savoring the tax exemption attached with Peer to Peer Lending? Click here to join our Lender Community. No charges apply. ?

To recap, FinClub is the first FinTech startup to secure a full-fledged Peer to Peer Lending license from the Financial Services Commission, the non-banking financial regulator in Mauritius. Operational since September 2021, our platform, FinClub.mu, connects creditworthy individuals looking for short term loans directly with individual investors, who are willing to lend them the money and in doing so, earn higher interest rates than they normally would derive from traditional instruments such as Savings account, term deposits or bonds.

If you're interested to learn more about investing in P2P Loans and start earning higher returns, please visit our platform or call us on 468 7400 or 5255 7413 to book a FREE personalised induction call with one of our financial analysts.?