TaxTMI 
TaxTMI 
No specific provision for TDS:
In view of author there seems no specific provision for TDS on security and guarantee charges / commission for providing security and / or extending guarantee in respect of loan obtained by assesse who has borrowed capital.
The security provider provide security by way of pledging or mortgaging or deposit of title deeds of his property and stand as guarantor to repay loan taken by borrower, in case borrower fails to meet commitment to pay interest and repay loan obtained by borrower from money lender.
Cost of finance:
Therefore, guarantee commission or security commission or charges are in nature of cost of borrowing.
Low rate of interest:
In case of a loan obtained on security and guarantee, interest is bargained with money lender and it is lower than in case of unsecured loan. This is because guarantor and security provider also undertake risks and money lender reduces his risks.
Therefore, guarantee and security commission can be regarded as a payment in respect of any moneys borrowed which is secured by security or guarantee provided by surety and /or guarantor.
General practices:
In commercial world such costs are considered as part of cost of financing and is / can be grouped under head ‘cost of finance’ for reporting and presentation.
Therefore, such payments can be regarded as payment in nature of interest on capital borrowed as per meaning of interest u/s 2(28A).
TDS- failure can be costly:
There have been many disputes in respect of meaning of ‘interest’ for purposes of allowable or not allowable expenses under different provisions and for deducting or not deducting tax at source.
In view of provision to be disallowed if TDS is not done and /or not deposited, non-deduction of tax at source can involve litigation with serious consequences.
Meaning of ‘interest’:
Definitions. [Clause (1) to Clause (15)]
2. In this Act, unless the context otherwise requires,-
[(28A) 'interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;
On reading of above we can see that though it is given as meaning, yet it is subject to contextual requirement. Furthermore, scope is enlarged by including some items of expenses which would not otherwise be in nature of interest.
Inclusive language to include any service fee or other charge in respect of the moneys borrowed or debt incurred expands scope .
These can be loan application and processing fees, commitment charges, upfront charges, and also charges for not utilizing full facility granted etc. These will normally be payable to money lender.
In case any expenses are payable to professionals for making application and liaison work, that will be for professional services. Even loan processing fees paid to bank can be considered as payment for doing any work or for professional services. In that case TDS will be under most appropriate provision (like professional fees or works contract) in view of facts and circumstances.
However, there is a difference, such expenses are incurred for money to be borrowed whereas interest is on money borrowed. Therefore, TDS as interest will not be proper in case of professional fees, processing fees etc.
Amount payable to security and guarantee provider is for capital borrowed, therefore, in those cases distinction to make security and guarantee commission as professional work or works contract will not be proper.
No harm in deducting tax if assesse is liable to deduct tax at source:
In case of deduction of tax at source, by adopting playing safe policy, there is no harm because advance tax payable by receiver of income will be reduced and it can be beneficial to person receiving income by way of guarantee / security charges. Therefore, to be on safe side and to avoid litigation tax can be deducted u/s 194A of IT Act read with section 2(28A) of IT Act.
Readers are requested to point out any shortcoming and enlighten to further improve knowledge on the subject of article for benefit of readers.