Computation of interest amount for the purpose of TDS

[pran shangari]

A machinery is acquired on hirepurchase basis on 36 EMI payment from a NBFC co such as Magma Leasing or L &T Financial Servies Ltd.My question is 1. Is there any obligation on the part of the purchaser to deduct tax at source, assuming it is partnership concern?If yes, then how will be the interest amount computed for the purpose of TDS?

[Rama Krishana]

Hire purchase transactions can not be bifurcated into Interest and Principal for the purpose of Section 194A to deduct TDS on interest. The installment paid is towards capital installments. Morever, the the amended scope of TDS on rent also do not cover such transactin sine the transaction is not in the nature of rental of the property. Therefore, in my view, no TDS should be deducted from EMI.

AI Summary

TDS on interest not required on hire purchase EMIs when installments are capital payments and interest is inseparable. Hire purchase EMI payments to an NBFC cannot be bifurcated into interest and principal for purposes of deduction under Section 194A; EMIs operate as capital installments, rent TDS provisions do not apply, and therefore no TDS should be deducted from EMIs.