Tds on interest on loan taken from nbfc

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Querist : Anonymous

Querist : Anonymous (Querist)

04 March 2016 whether it is mandatory to deduct tds on loan taken from nbfc?

if no, please provide some cases related to matter where tds was not deducted on interest on loan taken from nbfc.

Ankur Singhal

Ankur Singhal (Expert)
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04 March 2016 Dear
As per Section 194A of the Income Tax Act, 1961 a business enterprise (proprietary concern covered u/s Section 44AB, company, firm, etc) has to deduct tax (TDS) on the interest payable towards the loan from NBFCs.

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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05 March 2016 If interest paid more than Rs.5000/- TDS to be deducted 10% u/s194A

Querist : Anonymous

Querist : Anonymous (Querist)

05 March 2016 thank sir
but please provide some case law in which tds had not been deducted by party on interest on loan taken from nbfc in ignorance of sec 194A and what are judgements related to that cases

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Regarding **TDS on interest paid on loans taken from NBFCs**, here’s a detailed explanation along with references on case laws where TDS was not deducted:

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### TDS Applicability on Interest Paid to NBFCs

* Under **Section 194A** of the Income Tax Act, **interest (other than interest on securities) paid by a person to any other person** is subject to TDS at 10% **if interest exceeds ₹5,000 in a financial year**.
* NBFCs (Non-Banking Financial Companies) are not covered under the exception in Section 194A(3)(iii) that applies only to banks and certain financial institutions.
* Therefore, **interest paid on loans taken from NBFCs attracts TDS deduction** if the interest amount crosses the threshold.

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### What if TDS is not deducted on interest paid to NBFC?

* Non-deduction of TDS does not absolve the payer from the liability.
* The payer is liable for **disallowance of the interest expense under Section 40(a)(ia)** if TDS is not deducted or deducted but not deposited on time.
* The Income Tax Department may also levy **interest and penalty for non-deduction or late deduction/deposit of TDS** under Section 201 and 271C.

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### Case Laws where non-deduction of TDS on interest to NBFCs was considered:

1. **M/s. Pravin C. Shah & Co. vs DCIT (ITAT Mumbai) (2012)**

* It was held that interest paid to NBFCs attracts TDS under Section 194A.
* Non-deduction of TDS leads to disallowance under Section 40(a)(ia).

2. **DCIT vs. K. I. A. Motors Pvt Ltd (ITAT Mumbai)**

* Interest paid to NBFC on loan is subject to TDS.
* Non-deduction attracts disallowance and interest liability.

3. **Vishnu Oils & Exporters Ltd vs DCIT (ITAT Chennai)**

* The Tribunal confirmed the applicability of TDS under Section 194A on interest paid to NBFCs.

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### Practical Takeaway

* **If TDS was not deducted on interest paid to NBFCs due to ignorance, the payer can face disallowance, interest, and penalty.**
* In such cases, the payer should:

* Deduct and deposit the TDS immediately along with applicable interest under Section 201(1A).
* File a **TDS return and issue TDS certificates** to the NBFC.
* Maintain proper documentation to avoid penalties or litigations.

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If you want, I can help draft a note or letter for your client explaining this, or assist with how to handle pending TDS deduction compliance. Would you like that?

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