Tds on interest portion of emi paid to nbfc

This query is : Resolved

SATYENDRA KR. GUPTA (Querist)
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09 June 2012 Dear Friends,
Please suggest me the TDS deduction on Interest portion of EMI of a term loan from NBFC.
Also quote the section and any notification no./Judgment etc in this regard.

Thanks & regard
Satyendra Kr.Gupta

CA Rajendra Purohit

CA Rajendra Purohit (Expert)
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11 June 2012 In general practice, the NBFC companies provides a cheque quartely of the TDS amount on interest portion and you just have to deposit the same to the government. This is widely followed by all the NBFC's, take the example of Mahindra and Mahindra Finance, Tata Finance, etc.

CA Rajendra Purohit

CA Rajendra Purohit (Expert)
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11 June 2012 Section 194A of the Income Tax Act provides for deduction of tax at source (“TDS”) at the rate of 10% on payment of interest (excluding interest on securities) to a resident. Sub-section 3 of Sec. 194A provides for non-applicability of Sec. 194A in some cases which includes banking companies to which Banking Regulation Act applies. However, such exemption has not been extended to NBFCs. Resultantly, in contrast to the nil TDS rate enjoyed by banks on their interest receipts, NBFCs’ interest receipts are subject to a TDS rate of 10%. Though NBFCs have the option to apply for a lower withholding certificate under Sec. 197 of the Income Tax Act, practically it becomes difficult to obtain this certificate given the huge number of customers (in many cases in thousands).

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