Hi, I had loaned money to a family friend in India in 2017, the agreement was for him to pay an interest of 10% pa. However, after the 1st quarter no interest was ever paid, the postdated cheques he had given me were dishonored, the property papers he had kept with me as security were also bogus. After a lot of aggravation & a long court case – criminal case in India for cheque dishonor, the court has given a verdict in my favour.
Please could you help me with the tax calculation & the following questions:
1. The entire court awarded compensation / penalty/ appeal forfeited amount will be taxable in UK. Note: it is taxable in India.
2. Allowable expenses in India - legal fees, my travel expenses to attend court. Presumably the same expenses can be deducted here too. Please confirm.
3. The income would fall into interest income under DTAA provisions? Please confirm.
4. Would I get saving allowance credit on the income? Please confirm.
5. Income amount calculation- effect of currency exchange rates over 5 years. In order to calculate the amount in GBP, I converted the original loan amount, payments received in Indian Rupees (INR) to GBP, using the conversion rate at the time from HMRC website (monthly average rate used). The excess would be income in GBP. Is this correct? Just to clarify, created a table below…based on this my taxable interest income will be 4883 GBP total.
Original Loan amount : 1,000,000 INR 19/1/2017 GBP/INR: 83.99 11906 GBP
Payments schedule:
Appeal amt forfeited 200,000 INR 23/5/2022 GBP/INR:99.42 2012 GBP
Payment-1 450,000 INR 6/2/2023 GBP/INR:100.70 4469 GBP
Payment-2 350,000 INR 13/4/2023 GBP/INR:101.11 3462 GBP
Payment-3-4* 700,000 INR GBP/INR:102.23 6847 GBP
Total amount receive from court* 16,789 GBP
Gain over original loan amt* 4,883 GBP
* future payments, indicative rate used for explanation.
6. As seen from above table, for the last FY, I have not received the original loan back & as such no gain is made. However, as the forfeited amount is considered as excess over original amount, I have paid tax on it India & will declare 2012 GBP in UK income for FY2022-23 returns. I hope this is correct?
I'm very sorry to post such a long post but i really need help. I will be very grateful, if you could please spare sometime for this.
Thank You.
