Chartered Accountant
221 Points
Joined February 2015
The provisions of Section 194A which govern the withholding of taxes from interest payments. Section 194A(3)(iii) of the Act provides that no withholding is required to be done from interest payments to banking companies to which the Banking Regulation Act, 1949 applies.
NBFC stands for Non Banking Finance Company, which phrase is not covered by exemptions listed in Section 194A(3)(iii). Therefore, TDS applies for any payment made to NBFCs by way of interest.
However, word of caution is that all the above provisions are applicable only to RESIDENTs. There are many banks operating in India which are NON-RESIDENT for tax purposes- payment to which are not covered by 194A but by Sec 195. Any payment to non-residents which is chargeable to tax in India are subject to withholding according to the provisions of that section. Therefore, TDS is applicable if you are paying interest to any foreign banks.
Having said that, no withholding is required if the payee foreign bank produces a certificate referred to in Section 197 of the Act for NIL deduction or non-deduction.
Hope the above was useful.