Tds on interest

This query is : Open

Jain Vikas (Querist)
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08 November 2013 Dear Freinds,

I need your opinion regarding TDS on Interest.
We bought material from our vendor and we use to pay by way of LC. So if vendor discount the LC then he will get less amount due to discounting charges.
To get full amount as invoice value, we have issued LC of such amount which cover invoice value and amount of Discounting charges.
After dispatch of goods Supplier submits the Bill of Exchange covering the Invoice value and one Debit note stating interest for 90 days at specified rates which almost covers his discounting Charges so he gets amount from bank almost equivalent to his Invoice Value.
Now at the time of retirement of LC we will make the payment of LC (LC amount=Invoice Value+Debit Note)to the bank.

In this case we are making the payment to bank equivalent to Invoice value and Debit note which says Interest.
Now our query is whether payment to bank against such debit note will attracts TDS?

For Eg: A bought material from B. Bill amount Rs. 29026676. A given LC of Rs. 29799660/. B present LC for discounting to his discounting bank along with DN for Discounting charges stating as interest for 90 days at specified rate of Rs.772984.B will get full amount of his invoice Rs. 29026676.

Now at the time of LC retirement A will pay Rs. 29799660 to the Bank. So please let me know whether A has to deduct TDS on debit note amount which is interest for LC.

Sandeep Diwan

Sandeep Diwan (Expert)
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08 November 2013 TDS is to be deducted in invoice value only the amount which is payable to vendor. No TDS to be dedcuted on any excess amount payable in the form of finance cost or interest or for other setllement. It is the finance cost not part of invoice.