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TDS on NBFC

Sanjive (PCC student) (61 Points)

07 November 2008

Dear Friends,

Any Interest paid to NBFC (i.e. Private Concerns Like GE Money, Reliance Money) exceeding Rs 5,000/- in a year by a person whom TDS provisions are applicable, is responsible or liable to deduct tax at source on INterest paid to such NBFC.

NBFC's comes under the provisions of TDS as ordinary person?

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6 Replies

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 07 November 2008

Dear Sanjive Sir,

Please clarify, interest paid to NBFC is for what purpose?

In other words, for what purpose the loan/deposit/funds have made available by NBFC?

Regards

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Sanjive (PCC student) (61 Points)
Replied 08 November 2008

Originally posted by :Juzer
"	Dear Sanjive Sir, Please clarify, interest paid to NBFC is for what purpose? In other words, for what purpose the loan/deposit/funds have made available by NBFC? Regards	"

Hello Dear,

Is it make difference that for what purpose you have taken loan from NBFC?

A person whom TDS provisions are applicable and used/taken the loan from NBFC for business purpose then what will be your opinion.

thanks for giving response.

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 08 November 2008

Dear Sanjeev Sir,

As per Section 194A of the Income Tax Act 1961, tax has to be deducted out of the interest payments made by specified borrowers to the lender at the rates in force. The rates vary depending on the constitution of the payee (lender). For the category of domestic companies in which NBFC fall, the rate of TDS is presently 22.66% including surcharge of 10% and education cess of 3%.

Banking companies, Cooperative societies engaged in banking business, public financial institutions, LIC, UTI, Insurance companies and some other notified institutions are exempted from the purview of this section, implying that if the payment of interest is made to these entities, the borrower is not required to deduct TDS out of the interest payment. This is not available to NBFC even though they are in similar lending activities.

This NBFCs have approached to Sir P. Chidambaram (FM) and proposed pre budget Memorandum in last 4-5 years but no amendment are made to Finance Act till date.

For your reference,

Extract of Section 194A

(3) The provisions of sub-section (1) shall not apply—

(iii) to such income credited or paid to—

(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a section194a. co-operative land mortgage bank), or

(b) any financial corporation established by or under a Central, State or Provincial Act, or

(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or

(e) any company or co-operative society carrying on the business of insurance, or

(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;

Regards

Sanjive (PCC student) (61 Points)
Replied 10 November 2008


	Thanks for the clarification on the issue.

Deepak Gusain (Accounts Manager) (21 Points)
Replied 12 June 2010

Dear Sir,

Our company has taken a LAP (Loan Against Property) from ICICI Home Finance Company Limited (NBFC). We wanted to know that the interest amount paid by us to bank on this amount tds applicable under section 194 A.

Regards

Deepak

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Siddharth Kishan Mane (Tax Consultant) (283 Points)
Replied 20 March 2012

Originally posted by : Juzer

Dear Sanjeev Sir,

As per Section 194A of the Income Tax Act 1961, tax has to be deducted out of the interest payments made by specified borrowers to the lender at the rates in force. The rates vary depending on the constitution of the payee (lender). For the category of domestic companies in which NBFC fall, the rate of TDS is presently 22.66% including surcharge of 10% and education cess of 3%.
Banking companies, Cooperative societies engaged in banking business, public financial institutions, LIC, UTI, Insurance companies and some other notified institutions are exempted from the purview of this section, implying that if the payment of interest is made to these entities, the borrower is not required to deduct TDS out of the interest payment. This is not available to NBFC even though they are in similar lending activities.
This NBFCs have approached to Sir P. Chidambaram (FM) and proposed pre budget Memorandum in last 4-5 years but no amendment are made to Finance Act till date.

For your reference,

Extract of Section 194A

(3) The provisions of sub-section (1) shall not apply—

(iii) to such income credited or paid to—

(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a section194a. co-operative land mortgage bank), or

(b) any financial corporation established by or under a Central, State or Provincial Act, or

(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or

(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or

(e) any company or co-operative society carrying on the business of insurance, or

(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;

Regards

Dear Frnds,

If interest is paid to such NBFCs "without Deducting TDS" on interest by Borrower, then can the Borrower claim the Rebate of INterest paid as his expense in P&L A/c.

in Short "INterest paid to NBFCs" is an Admissible expense or Not?? - Siddharth