18 October 2010
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.
Now whether TDS is applicable or not on such payments made to a NBFC and portfolio managers need to be examined from the angle that it is not a schedule bank or covered under the list of exempt entities under section 194A(3). If not, then the TDS is applicable.
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