loan gurantee fee as a commission

[MITSUI PRIME ADVANCED]

Dear Sir,

we have taken one loan form jabic japan, in such cases we are paying loan guarantee fee commission to their parents company in such cases pl. advice us service Tax and TDS both are attract on transaction

pl. advice.

Thanks & Regards

Arjun Sachdeva

If commission is paid outside India, service tax liability would arise on service receiver located in India under Reverse Charge. If commission is paid in India, service tax would be charged by service provider.

[YAGAY and SUN]

Dear Arjun,

This would fall under the taxable category of "Banking and other financial services'.  On loan guarantee fee you would have to pay the service tax under POPs Rules.  This would be paid under Notification No. 30/2012-ST/20.06.2012 w.e.f. 01-07-2012 under reverse charge mechanism.

Regards

Team YAGAY & SUN

(Indirect Tax Consultants)

[Mahir S]

Yes, service tax required to be paid under R.C.M, as explained above.

[GC BAID]

In my opinion processing charges are in the nature of interest and included in the definition of interest as stipulated u/s 2(28A) "interest" means interest payable in any manner in respect of any money borrowed or debt incurred (including deposit, claim or other similar rights or obligation) and included any service fee or other charge in respect  of the money borrowed or debt incurred or in respect of any credit facility which has not been utilised.

and there is  requirement to deduct TDS from payment of interest.

G C Baid

AI Summary

Reverse charge on loan guarantee fees applies when services are received in India; TDS may apply if characterised as interest.
Loan guarantee fees paid to foreign service providers are subject to service tax on the Indian service recipient under the reverse charge mechanism; if paid to domestic providers, the provider charges service tax. Such fees are treated as banking and financial services under the POPs Rules and Notification No. 30/2012 ST. Separately, these processing or guarantee charges may be characterised as interest, attracting TDS deduction obligations on payment.