Interest Earned from Loans Granted to Private Individuals or Corporations is Not Subject to Withholding Tax

August 7, 1987 BIR RULING NO. 234-87 24 (a) 159-87 234-87 Gentlemen : This refers to your letter dated May 18, 1987 requesting a ruling as to whether interest on loans granted by you to private individuals or corporations is subject to withholding tax. It is represented that you are a registered institution in accordance with the provisions of BIR-NEDA Regulations No. 1-81 as amended by Revenue Regulations No. 1-82 and 10-82, that you derive your income from funds contributed by members, friends, various persons of goodwill, both from local and foreign sources; that the donations received are given out as donations and contributions for various purposes for which you are organized; and that on certain occasions when there are idle funds intended for certain projects but which are not yet implemented, you see to it that the funds are invested in income generating investments. In reply, I have the honor to inform you that interest earned by you from loans granted to private individuals or corporations is not subject to the withholding tax. However, you make a practice of lending money at interest, hence, you are a lending investor under Section 157 (u) of the Tax Code, as amended, subject to the 5% tax on your gross income under Section 175 of the same Code. Moreover, you are subject to income tax on said interest income, pursuant to Section 24 (a) of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner