How is interest income deemed if the trade involves lending money?

When a trade involves lending money, the interest income earned from this activity is classified as trading income taxable. This classification is based on the premise that the lending of money is conducted as part of a business operation, which generates revenue for the lender. In this context, interest income is treated akin to sales revenue rather than passive income.

The nature of this income is significant because it directly influences the tax treatment. When interest income is categorized as trading income, it is fully taxable under income tax regulations, and the lender must report it as part of their business income. This assessment is relevant to tax planning and compliance, as business entities or individuals engaging in lending activities must adhere to the associated tax obligations.

In contrast, non-trading income refers to incomes that are not derived from regular business operations, tax-exempt income pertains to income that is not subject to taxation under specific statutes, and investment income typically describes passive gains from assets that are not actively managed. Given the active nature of lending in this scenario, interest income aligns with taxable trading income.