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TDS on interest on loan

praveen (CA Final) (40 Points)

27 July 2010

A government corporation has taken a loan (Rs. 75 lacs) from government of state and paying interest @ 10%

Whether Tax has to be deducted at source for the interest amount.

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8 Replies

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 27 July 2010

dear freind

any payment given to state govt or central govt. tds is not required to be deducted.

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venkatraman shrinivas (Tax consultant/Tax Advocate In Practice.) (313 Points)
Replied 27 July 2010

Mr.Praveen,

Certain institutions are specifically exemprted outaright from the application of tax ddeduction out of inteest paid tro them. One such institution is gaovernment ora Corporations creazted by govedrnment by an act of legislature. Normally government does not interact diredct and only corporation or other spedcific instritutions intended for each specific purpose co-ordinate. In the situation projected byu you, it is presumed that the loan in question has been obtained by one government owned entity from another institution backed by the government. The recipient entity (payee)is entitled to receifve the interest without deductrion. Kindly refer to section 194A (3) with sub sections (iii)(b) thereof. In this back ground, there is no obligation to deduct tax at sourace.