Tds on factoring charges to be deducted under 194h or 194c
Querist : Anonymous
Querist : Anonymous
---
### 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.
---
### 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% |
---
### 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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