12 November 2010
X Ltd. is the builders & Developers collects advances from customers against the flats booked by customers. Now X Ltd decided to pay simple interest on advances received from customers.
for example Mr.A makes advance payment of Rs. 10 lakh with X Ltd on 1st Oct 2010 in project of X Ltd.then demand raised by X Ltd of Rs. 1 lakh on 15th Oct 2010.Then on 15th Oct X Ltd. will pay to Mr.A Interest for 14 days on 10 lakh.
What are the implications of the transaction under Comapnies Act & Income TAx Act i.e is there any restriction on such transaction?
No, Section 58A is not applicable as it is applicable for deposits from public and members without advertisement.In your case it is advance from customers.
Yes, TDS on Interest is to be deducted.
However as per Provisions of Section 194A in case of Interest on deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes 16[and which is eligible for deduction under clause (viii) of sub-section (1) of section 36 is not Required to deduct Tax.
But Since in Your Case it is not interest on deposit, Tax has to be deducted.
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