TDS on interest paid on loan by a finance company/firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 April 2010 If a finance company not registered with RBI lends loan to shop owners etc to enable them to finance and sell their products to retail customers. The financing is done for retails and the payment is directly made to the shop owner/ authorised dealer. Is the Shop owner/ retail customer liable to deduct TDS on the interest paid to the finance company? The finance company is supposed to be a partnership or a proprietorship firm.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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02 April 2010 YES THEY WILL HAVE TO DEDUCT TDS

Querist : Anonymous

Querist : Anonymous (Querist)

02 April 2010 Sir, the financing firm is financing authorised dealers of electronic shops. I mean the cheque would be given to the shop owner, but the loan outstanding will be shown in the name of an individual who purchases the product. The individual will have to deduct TDS in this case? Also, is there any limit to avoid TDS and if YEs is it per individual based or total interest collected based?

Thanks in advance

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Shyam Lal Naik

Shyam Lal Naik (Expert)
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02 April 2010 What is the substance of the transaction. Whether it is a loan to the shop owner or the customer of the shop owner. Whether the contract is between the customer and the lender, or between the lender and the shop owner.

You may consider the following.

Indivisual and HUF are not required to deduct TDS u/s 194A(ie. on interest), if the indivisual/HUF does not have turn over exceeding the limit prescribed for Tax audit.

Further the threshhold limit is Rs. 5000/- in this case.

Querist : Anonymous

Querist : Anonymous (Querist)

02 April 2010 Sir, thank you for your reply, but a little more clarification from my side.

The loan will be to the individual who purchases the goods from the shop, but the financing firm will issue the cheque directly to the shop owner. The interest will be paid by the individual who purchases the electronic goods or the commodity from the shop. From your reply , I infer that individual who purchases the good and has taken the loan (which is directly paid to the shop owner from which the goods are purchased) can pay interest to the financing firm without any TDS liability. Also the number of such individual can be 20 or 30 or more but no individual is liable to deduct the TDS, and the financing firm will show it as its income when the return is filed. Kindly confirm my understanding.

Thanks in advance

Shyam Lal Naik

Shyam Lal Naik (Expert)
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02 April 2010 Your understanding is in accordance with my reply.