Tds applicability on NBFC companies

[sunil mehta]

A partnership firm borrows takes a personal loan from HDB Financial Services Ltd,a subsidiary of HDFC Bank Ltd. for business purpose.hdb fIN.SER. LTD. IS A nbfc.That partnership firm was under tax audit in A.Y. 2008-09.The firm paid interest on personal loan exceeding rs.5000/- during the financial year. 1)Whether NBFC are subjected to TDS ?(ON INTEREST PAID BY BORROWER FOR BUSINESS PURPOSE) 2)Is there any exemption to NBFC?(Banks are out of purview of section 194A)?If yes then quote notification/circular no.

[Rama Krishana]

I thing NBFCs are not banking companies and not eligible for the provisions of section 194A. However, it seems that the matter is controversial and more debate and views are invited on this issue.

[CAGOPALJI AGRAWAL]

Since the law is clear so no need of any notification or circular. Banks are exempt only. NBFC are not exempt and I have faced similar situation.Banking companies are those on whom banking regulation act applies.

AI Summary

TDS on NBFC interest: withholding required because NBFCs are not bank-exempt under the applicable law. The issue is whether tax must be withheld on interest paid to a non-banking financial company for business purposes. The discussion concludes that the banking-company exemption does not extend to NBFCs and therefore NBFCs are subject to withholding obligations on interest received, notwithstanding one view expressing uncertainty.