Tds on factoring charges to be deducted under 194h or 194c

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Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2013 Whether TDS on Factoring Charges to be deducted under 194H or 194C?

CA Parul Saxena

CA Parul Saxena (Expert)
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16 February 2013 under section 194c

CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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16 February 2013 Factoring charges is in the nature of work and as such the Tax deductions will be deducted under Sec 194 C.

Querist : Anonymous

Querist : Anonymous (Querist)

18 February 2013 Dear Sir can you explain me why not tds on factoring charges to be deducted under 194H. Since payee is a financial institution.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 Great question! Here's the clarity on **TDS on factoring charges** and why it falls under **Section 194C** and **not 194H**:

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### What are Factoring Charges?

* Factoring charges are fees paid to a **factoring company or financial institution** for **services rendered** — like collection, credit risk management, or financing of receivables.
* These charges are for **service/work** provided.

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### TDS Sections in Consideration:

| Section | Nature of Payment | Applicable When | Rate (generally) |
| ------- | -------------------------------------- | -------------------------------------------- | ---------------- |
| 194C | Payment to Contractors/Sub-contractors | Payment for work/supply of labor or services | 1%-2% |
| 194H | Commission or Brokerage | Payment for commission/brokerage services | 5% |

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### Why **194C** and Not **194H** for Factoring Charges?

* **Section 194H** is specifically for **commission or brokerage fees**.
* Factoring charges are **not commission or brokerage**; they are fees charged for **services related to collection or credit management**, more akin to **contractual service charges**.
* Since factoring involves a **service contract**, the charges are classified under **"work contract" or "service contract"**, making **Section 194C applicable**.

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### Additional Points:

* Even if the payee is a financial institution, the nature of the payment decides the section under which TDS applies, **not the status of the payee**.
* The financial institution is providing a **service**, so **194C (work contract)** applies.

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### Summary:

| Payment Type | Section Applicable | Reason |
| ----------------- | ------------------ | ---------------------------------------- |
| Factoring Charges | 194C | Charges for service/work, not commission |

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If you want, I can help with exact TDS rates or any other details!

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