Tds deduction
Querist : Anonymous
My question is whether TDS will be applicable? (i.e. Pvt ltd company as partner paying interest to partnership firm)
Querist : Anonymous
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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:
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### 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.
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### 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 |
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