Revamped P2P lending: Are the high returns for everyone as P2P platforms pass RBI's regulatory nudge? Watch out for these 8 risks

Not long ago, P2P (peer-to-peer) lending platforms were offering eye-catching returns of 18–25% that made investors do a double take. For those chasing high yields, it felt like a rare opportunity to earn equity-like returns from what appeared to be a fixed-income product.

Then the regulator stepped in. In its August 2024 guidelines, the Reserve Bank of India stripped away several grey areas in the P2P space: no more guaranteed returns, no more algorithmic auto-investing without explicit investor consent, and tighter operational guardrails overall.

P2P lending has since emerged from this overhaul as a more transparent and regulated asset class that can still offer higher returns than traditional fixed-income products. But “transformed” does not mean “risk-free.”


The new rules put more control in investors' hands and with that comes greater responsibility. For the right investor, one who understands the risks, does the homework, and doesn’t treat it like a savings account, P2P lending can be a meaningful addition to a diversified portfolio. Here are eight critical things to watch out for before you invest.

1. Is your P2P platform RBI-registered?

This is step zero that shouldn’t be skipped. P2P lending is regulated by the RBI and only RBI-certified platforms can legally operate in India. All legitimate P2P platforms are registered as Non-Banking Financial Companies (NBFCs) with the RBI.

If a platform you come across isn't on the RBI's list of registered NBFC-P2P platforms, walk away regardless of what returns it promises. You can verify any platform's status directly on the RBI website . Make this your first stop before you even read the platform's homepage.

2. Understanding your default risk on P2P platforms

One of the most consequential changes from the 2024 regulations is that platforms can no longer offer any form of credit guarantee to cushion you against borrower defaults. The RBI has explicitly prohibited NBFC-P2P platforms from offering credit enhancements or guarantees.

"Such guarantees are not plausible across financial products or investments. Lenders on P2P platforms bear the risk of delay or default by borrowers, which can result in principal loss as well," says Neha Juneja, Co-founder, IndiaP2P.

The best way to mitigate this risk is to have a balance between high quality borrowers and wide diversification. In practical terms, this often means deploying smaller amounts over multiple sessions, she recommends.

3. The T+ 1 settlement rule explained: Your money will not stay idle

RBI's T+1 settlement rule fundamentally changed how capital flows through P2P platforms. The rule mandates that all funds must be settled within one working day.

For lenders, this means two things: when a borrower repays an EMI, the money reaches your bank account within the next working day. And when you transfer money to the platform to lend, it must be matched to a borrower within that same working day, or it gets returned to your account.

"The T+1 rule ensures that lender funds are not idle at all; they start accruing interest from the very next working day, if not the same day. This is positive for lenders and ensures standardisation in terms of capital deployment timelines with other regulated investment products," clarifies Juneja.

However, you now need to log in, review available borrowers, and select loans within a tight window, something that was previously done automatically by platform algorithms.

"It is safer to return to your chosen P2P platform regularly and select the requisite number of loans over multiple sittings. This format gives you more time, alongside the ability to redeploy your EMIs received for consistent returns," says Juneja.

4. Diversify across many borrowers while investing in P2P lending

With automatic diversification now banned and no safety nets in place, spreading your money across many borrowers is the single most important thing you can do to protect yourself.

"As credit risk remains entirely with the lender, diversification becomes the primary safeguard. Ideally it should be done across 100+ loans in any size of portfolio. The platform allows many types of filtering options to lenders,” says Bhavin Patel, Co-Founder & CEO, LenDenClub.

It is important to check borrower profile such as their past credit history i.e. credit bureau score, loan purpose (business/consumption/emergency), income etc. Within that, it's good to diversify on numbers i.e. lend smaller amounts to a larger number of borrowers, agrees Juneja.

There is also cap on single-borrower exposure at ₹50,000, which works as a built-in diversification guardrail.
But diversification alone isn't enough, when evaluating individual borrowers, look at their credit bureau score, the platform's internal rating, their income level, and the interest rate they are offering.

5. Platform fees vs. real returns: What P2P investors are earning

The interest rate a borrower agrees to pay is not the return you will earn. This distinction matters enormously.

“P2P platforms charge a fixed fee, which can further be split across platform usage fees, collection related fees, etc. It is important that investors understand that the interest rate being paid by the borrower is not their return or ROI,” explains Juneja.

Actual returns depend on fees deducted and borrower repayment performance. Across most platforms, fee details are shown and potential returns net of fees can be assessed, she says.

Portfolio construction varies significantly depending on when you lend, how you diversify, and whether you reinvest repayments. To get a sense of what the numbers can look like, here's a simple illustrative example*:

Parameter	Details
Total amount lent	Rs 10 lakh (deployed at once)
Loan tenure	24 months
Borrower interest rate	24% p.a. (reducing balance)
Platform fee	2.8% p.a. + 18% GST
Number of loans	500+
Principal re-deployment	None
Estimated monthly payout (no defaults)	Rs 50,423
Estimated XIRR (no defaults)	~18% p.a.
Assumed NPA rate	3%
Estimated XIRR after defaults	12–15% p.a.

The range in post-default returns, 12% to 15%, comes down to the timing of when a loan goes bad. A default after 6 months hits differently than one after 21 months of regular repayments.

*Illustrative scenario built on several interlinked assumptions. In practice, no two lenders' portfolios are alike. Before investing, find the net-of-fees projected return figure on the platform, most reputable ones display this. Keep in mind that this figure still assumes zero defaults. Your actual take-home will depend on how many borrowers repay on time.

6. P2P loan exit limitation: Don't invest money you might need urgently

Under the old system, some platforms allowed lenders to sell their loan positions to other lenders if they needed liquidity before the loan matured. However, that is now gone.

The correction in the regulations clearly stops such transactions. So, lenders cannot come out of their existing loans by selling it to other lenders. With such a regulation in place, the lenders will have to wait till loan maturity,” explains Patel.

However, the good part of P2P lending is that you start getting part of your lent amount from the next month itself. It solves the liquidity issue of lenders partially but not fully, he says.

Invest only money you can comfortably set aside for the loan tenure, typically 12 to 36 months. P2P lending is not a substitute for an emergency fund or short-term savings.

7. Investment limits, TDS rules, and ITR filing in P2P lending

The RBI caps total P2P investment across all platforms at Rs 50 lakh per individual. If you want to invest more than Rs 10 lakh, you'll need a net worth certificate from a Chartered Accountant confirming that your net worth is at least Rs 50 lakh.
To calculate the net worth, the CA may ask for details of fixed assets, liquid/not liquid investments like mutual funds, stocks, ULIP, FD, bank balances etc, says Patel.
Since platforms are not permitted to deduct TDS, the entire responsibility of declaring and paying tax falls on you.

"As per extant norms, no P2P platform can deduct TDS. Lenders or investors receive full payouts and must pay tax on the total interest earned as per their applicable slab rate. Earnings from P2P lending can be filed under the category of 'other income.," explains Juneja.

All platforms show the break-up of principal and interest received. Lenders are required to pay tax only on the interest earnings, she clarifies.

Download your annual income statement from the platform's dashboard at the end of every financial year to report your income accurately in your ITR.

8. Borrower default and tax: What you can claim under Indian tax law

While Indian tax law provides a route to claim losses from borrower defaults it is available for only a specific category of lenders. The tax treatment of a default depends on one critical factor whether lending is your primary business or not.

“If a person is engaged in the business of lending, the defaulted principal amount can be claimed as a bad debt under Section 36 of the Income Tax Act, 1961. This deduction is claimed under the head “Profits and Gains from Business or Profession.” The bad debts deduction under section 36(1)(vii) is available under both the old and the new tax regimes,” says CA Abhishek Soni, CEO & Co-Founder, Tax2win.

If the main income source is not lending, they cannot claim this deduction. It is only applicable in case, if the lender is engaged in a business of lending, he says.

For most salaried individuals dabbling in P2P lending, a borrower's default offers no tax relief whatsoever.
“However, salaried individuals who have lent any amount cannot claim the defaulted principal as a deduction,” he cautions.

As for interest, tax is payable only on the interest received. If interest was never received, it is not taxed and therefore no separate deduction is allowed for it, he adds.

P2P lending in 2026 is a more mature, transparent, and honest product compared to two years ago. The RBI's overhaul has removed certain illusions and what remains is a genuine lending opportunity for investors who are willing to be active, informed participants.