What is NBFC-P2P Lending Platform?

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What is NBFC-P2P Lending Platform?

An NBFC-P2P lending platform serves as a digital marketplace for participants involved in peer-to-peer lending. It is a class of NBFC recognized by the Reserve Bank of India (RBI). If you want to learn about what an NBFC-P2P lending platform is, go through this entire article. 

Meaning of NBFC P2P Lending Platform

NBFC P2P is a NBFC class for non-banking institutions engaged in the peer-to-peer lending business. All the NBFCs in India are regulated by the Reserve Bank of India, including NBFC P2P. In 2017, the NBFC regulator issued guidelines to regulate the expanding P2P lending space in the country. 

P2P lending refers to borrowing and lending money through an online marketplace. By using the P2P lending facility, an individual can obtain a loan directly from another individual, cutting out the financial institution as an intermediary. P2P lending is also called social lending or crowd lending. 

Platforms like Lendbox, Mobikwik Xtra, Finzy, Credit Mint, Fello, i2i Funding, and LenDen Club are some examples of P2P lending platforms in India.

What are NBFC Peer-to-Peer Lending Advantages?

By participating in the P2P lending platform, the borrowers and lenders can avail certain advantages. All the key advantages are discussed below:

P2P Lending Advantages for Borrowers

Let’s discuss the advantages of the P2P lending platform for the borrowers first.

• Funding Accessibility: NBFC P2P lending provides an alternative for people who struggle to obtain loans from traditional banks.
• Competitive Rate of Interest: Generally, the P2P lending platform has more competitive interest rates than traditional banks. This makes loans more affordable and attractive to the borrowers.
• Easy Process: The P2P lending platforms are easy and simple to use. These platforms simplify the borrowing process so that it is convenient for the borrowers.

P2P Lending Advantages for Lenders

Now, let’s discuss the advantages of peer-to-peer lending NBFC platforms for lenders.

• Relatively Higher Returns: By lending to the borrowers, the lenders can earn relatively higher returns as compared to traditional savings accounts or low-risk investments like FDs or RDs.
• Diversification of Investment Portfolio: P2P lending allows investors to diversify their investment portfolio by spreading their funds across multiple borrowers, which can potentially reduce investment risk.
• Easy to Access: Lenders can easily participate in peer-to-peer lending through online P2P lending platforms. These platforms can be accessed anywhere and can be used easily.

What are the Risks Associated with NBFC P2P Lending Platforms?

There are numerous advantages of NBFC P2P lending. However, with every good thing comes certain drawbacks. Let’s check out the risks associated with NBFC P2P lending platforms.

• Credit Lending Risk: In some instances, the borrowers may fail to meet their financial obligations, i.e., to repay their loans. In P2P lending, the risk is higher than that of traditional bank loans.
• Risk Related to Liquidity: In some instances, lenders find it difficult to sell their investments before the loan reaches maturity. It ties up their money for a longer period, and they cannot really do much about it. 
• Regulatory Risks: P2P lending is still a relatively new concept in the country. The regulations for NBFC P2P lending are still evolving, and the changes in the rules can affect the functioning of the P2P lending platforms.
• Platform-related Risk: Certain peer-to-peer lending platforms might fail. If it happens, it can put the lenders’ investment at risk. 

What are the Tax Implications of NBFC P2P Lending?

Many people are not unaware of the tax implications of P2P lending, as it is a relatively new concept. We have stated the tax implications for the lenders in the points below:

• Tax on Interest Income: The Income Tax Act 1961 considers income generated through P2P lending as “income from other sources.” The interest gets added to the lender’s total income and is taxed as per the income tax slab.
• Tax Deducted At Source: The TDS is deducted on interest from P2P lending as per Section 194A of the ITA. If the borrower is subject to a tax audit and the interest payable to any lenders crosses the threshold of Rs. 5,000 in an FY, then the TDS must be deducted in such a case.
• Goods and Services Tax: The interest income is exempt from GST. However, the processing fees charged by the P2P lending platforms include the GST charges. The input tax credit on fees can be claimed by the lenders by providing their GST number to the P2P lending platform.
• Investment Principal Amount: The principal amount invested cannot be claimed as a capital gain or loss for tax purposes in the case of any loan defaults.

Conclusion

NBFC peer-to-peer lending platforms are the new-age alternatives to traditional bank loans. These platforms come with many advantages, such as easy access to funding for borrowers and higher returns for lenders. However, there are also certain risks associated with these platforms, such as credit risk and liquidity risk. If you want to open an NBFC in India, obtaining an NBFC license from the Reserve Bank of India (RBI) is mandatory. If you want assistance in obtaining this license, connect with Registrationwala’s NBFC consultants. We would be happy to serve you!

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