DEDUCTION OF TAX FROM PAYMENT OF INTEREST U/S 194A

[CA.ANCHAL RASTOGI]

1. A COMPANY HAS TAKEN CAR LOAN FROM TATA FINANCE LIMITED. IS CO. LIABLE TO DEDUCT TAX U/S 194A ON INTEREST PAYMENT TO TATA FINANCE? 2. A COMPANY HAS TAKEN LOAN FROM INDIA BULLS FINANCIAL SERVICES. WILL SEC 194A BE APPLICABLE IN THIS CASE ALSO?

[Rama Krishana]

Section 194A(3) provides certain exceptions in which TDS u/s 194A is not required to be made. Therefore, where the amount paid to "tata finance" or "india bulls financial services" are falling under this provision, no TDS is required to be deducted. It is the duty of the borrower to ascertain the category of the lender. In case of doubt, it is necessary to get a declaration / certificate from the lender that whether they are falling under the exclusion list mentioned u/s 194A(3)

[CAGOPALJI AGRAWAL]

With utmost regard to Ramakrishna Ji, to my view, TDS has to be deducted on interest payment made to NBFC viz, Tata Finance or India Bulls u/s 194A and foreign banks u/s 195. Practically these finance companies take EMI cheque or ECS instructions in advance so the deductor is required to approach them to inquire whether they have any certificate from AO for short deduction or non deduction. Usually the TDS is deposited on their behalf by deductor then at the issuance of TDS certificate, they issue the cheque to the deductor.

AI Summary

TDS on interest: deductors must withhold on payments to NBFCs unless an exemption or non-deduction certificate applies.
Borrowers must generally withhold tax on interest payments to financiers such as non-banking finance companies unless a statutory exemption for interest TDS applies; the borrower should verify the lender's category and obtain a declaration or an assessing-officer certificate for lower or non-deduction, otherwise the deductor should withhold and deposit tax on the lender's behalf.