24 April 2009
The definition of Interest has been provided in section 2(28A) of the Income tax Act as following .
"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;
According to this definition the interest includes any service fees or other charges in respect of the money borrowed or debt incurred. An upfront fee paid to a bank is nothing but service charges paid to bank as service fees or other charges in respect of moneys borrowed.
As per section 194A(3)(iii) of Income tax act the TDS is not required to be deducted from the payment or credit made to a banking company engaged in the banking business. Since the upfront fees is an interest, no TDS is required to be deducted from it while making payment to a banking company.
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