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Can interest subsidy be treated as promotional expenses?

RAHUL GARG (Tax Assistant) (39 Points)

18 December 2014

Will the interest subsidy payment made to a NBFC be treated as Interest income in the hands of NBFC or will it be treated as Promotional Expenses by the assessee?

If treated as Interest Expense in the hands of assessee, will TDS provisions under section 194A apply?

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8 Replies

Z ( ) (2960 Points)
Replied 21 December 2014

What was the purpose of the grant? Who gave it and when (prior to starting operation or later) ?

RAHUL GARG (Tax Assistant) (39 Points)
Replied 21 December 2014

The purpose was to finance customers to improve sales. NBFC provided the grant to customers as it had entered into an agreement with the assessee.

Z ( ) (2960 Points)
Replied 21 December 2014

Does by Interest subsidy you mean that interest has been foregone? Check the 1st post and your previous post . Whether the grant has been received by NBFC or it has been provided by iy?

Please provide more details of transaction

In any case this is a revenue receipt and can't be capitalized . I want more info for checking whether TDS provision will apply or not

RAHUL GARG (Tax Assistant) (39 Points)
Replied 21 December 2014

NBFC has provided loan to customers as per agreement with assessee. It does not charge interest on that loan amount from customers but charges it from the assessee. So will TDS be deducted on the interest amount payable to NBFC by the assessee?

Z ( ) (2960 Points)
Replied 21 December 2014

NBFC is indirectly receiving the interest which actually pertains to various customers, so in this case your assessee should deduct tax while making the payment to NBFC.