TDS on processing fee

Whether TDS is leviable u/s 194J or 194A of Income Tax Act 1961 on processing fees charged by NBFCs?

Analysis and discussion:

Under section 194J of Income Tax Act 1961, Tax is required to be deducted if payment made to resident in respect of fees for professional or technical services.

Explanation.- For the purposes of section 14J-

(a) professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub- section (1) of section 9;

"fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head" Salaries"

From the above provision it is apparent that Processing Fees does not come under the purview of fees for professional or technical service. Thus it is clear that TDS is not required to be deducted under section 194J of Income Tax Act 1961.

Now the Question is Whether TDS Under section 194A of Income Tax Act 1961 shall be leviable on the Processing Fee?

Let's analyse the section 194A to clear the understanding of Tax deduction at source on processing fee under section 194A!

Under section 194A of Income Tax Act 1961, Tax is required to be deducted on interest other than on securities. And Interest has been defined under section 2(28A) of Income Tax Act 1961

Let's take a view of definition of interest:

' Interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.

Definition of interest is inclusive in nature and it specifically include any service fee or other charge in respect of the moneys borrowed or debt incurred.

And it is also obvious that Processing fees is fee charged in respect of the moneys borrowed or debt incurred. Thus it is undoubtedly covered in the definition of interest as specified under section 2(28A) of Income Tax Act 1961.

Thus, from the above analysis & discussion it can be concluded that TDS is leviable on processing fees charged by NBFCs under section 194A of Income Tax Act 1961.

The author is in CA Final, CMA Final and CS Professional level