Tds on interest charged on latter of credit
Querist : Anonymous
Querist : Anonymous
---
### Scenario:
* Company A pays interest charged by Company B on a **letter of credit (LC)**.
* The interest amount is billed via a **debit note**.
* Both companies are residents in India.
---
### Is TDS deductible?
**Yes**, TDS is required to be deducted on interest payments made to resident companies.
---
### Legal Provision:
* As per **Section 194A** of the Income Tax Act, **TDS is deductible on interest payments** (except interest on securities).
* Interest paid on delayed payments, or interest charged on LC or debit notes for delayed payment, also attracts TDS.
* The debit note for interest or other charges is treated as **payment of interest**.
---
### Relevant points:
* **TDS rate:** Usually 10% on interest payments to residents.
* If the payee does not have PAN, TDS rate will be 20%.
* Even if interest is charged via debit note, it does not change the nature of the payment.
* Payment made to a resident company for interest should have TDS deducted under Section 194A.
---
### Supporting Case Laws or Circulars:
* CBDT Circulars clarify that **interest payments on any dues, including delayed payment interest, are subject to TDS under Section 194A**.
* Interest charged on any form of credit or delayed payment — including via LC or debit notes — is considered interest income for the recipient and attracts TDS.
---
### Summary:
| Transaction | TDS Applicability | Section | Rate |
| ------------------------------------ | ------------------------- | ------- | --------------- |
| Interest on letter of credit charges | Yes | 194A | 10% (residents) |
| Debit note interest charges | Yes (treated as interest) | 194A | 10% |
---
If you want, I can help draft the exact TDS deduction entries or help with any specific scenarios!
Click here to login now
Similar Resolved Queries
- Accounting treatment of AMC alongwith the purchase of Laptop
- Condonation Request sec 119(2) b -Enhancement Limit of Leave Exemption prior to AY 2023
- Unable to File TDS Q2 Return – New TRACES Portal Error
- Transfer of Physical Stock Between Two Proprietorship Concerns
- Not ordinarily resident having partnership income in India and salary in USA is any form to filed be
- Taxation of crypto futures in India Fy 2026- 2027
- Issuing of delivery challan by seller of goods
- GST Treatment of Purchases with GST Paid where Outward Supplies of Manufactured CattleFeed Exempt
- EPF ECR NEW RULES Sep 17th 2026
- Expert Help Required for TDS Refund 100000 Through TRACES – AY 2022–23
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Regime change
- Goods sold but invoice not issued
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
- Confused About My Career After 12th — Cyber Security, AI or Finance? Need Guidance
- FAST-DS 2026 Under Tax Law - No recourse or support for person declaring via this scheme?
- Guidance Needed: Linking Multiple Form 26QB Payments and Responding to ITD Defaulter Notice
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
