Tds deduction

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 September 2014 ABC Associates (Partnership Firm) in which a pvt ltd company is partner. A pvt ltd (Partner) paying interest to ABC Associates(partnership firm).

My question is whether TDS will be applicable? (i.e. Pvt ltd company as partner paying interest to partnership firm)

Querist : Anonymous

Querist : Anonymous (Querist)

01 October 2014 pls give me suggestion.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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27 July 2025 Great question! Here’s the clear explanation:

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### Scenario:

* **ABC Associates** is a Partnership Firm.
* A **Private Limited Company** is a partner in ABC Associates.
* The Pvt Ltd company is paying **interest** to ABC Associates (the firm).

---

### Is TDS applicable?

**Yes**, TDS is applicable on interest paid by the Pvt Ltd company to the partnership firm, but the section under which TDS applies depends on the nature of the interest:

---

### 1. Interest on Loan or Borrowing (Section 194A):

* If the interest is paid on **loan or borrowing** by the Pvt Ltd company to ABC Associates, then **Section 194A** applies.

* TDS @ 10% (currently) is deductible on interest payments to residents exceeding Rs. 5,000 in a financial year.

* Since the payee is a partnership firm, TDS will apply on interest paid.

---

### 2. Interest on Capital (Profit Share):

* If the Pvt Ltd company is paying interest on its **capital contribution as a partner** (i.e., partner’s share of profits which is in the form of interest), then:

* Such interest is usually treated as **interest on capital**.

* TDS is **not applicable** on interest paid on capital to partners under normal circumstances.

---

### What matters most?

* **Is the payment interest on a loan/advance made by ABC Associates to Pvt Ltd, or is it interest on capital as a partner?**

* **If interest on loan/advance => TDS under Section 194A applies.**

* **If interest on capital => No TDS applicable.**

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### Summary Table:

| Type of Interest | TDS Applicability | Section |
| ------------------------------------- | ----------------- | ------- |
| Interest on loan/advance | Yes | 194A |
| Interest on capital (partner’s share) | No | N/A |

---

If you want, I can help you draft a detailed note or help with TDS entries for this case. Would you like that?

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