Tds on interest for machinery loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2011 Sir whether TDS provision of sec 194A attract for interest paid to financial institution for Term loan (Machinery loan) taken by assessee, pls clarify

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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12 August 2011 S 194(3)(iii)
No TDS is required to be deducted on interest payable to FIs.

Querist : Anonymous

Querist : Anonymous (Querist)

25 August 2011 thank you sir , but what is the position if it is not a financial institution but it is a private finance company.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Good question!

Here’s the clarification on **TDS on interest paid for machinery loan**:

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### 1. Interest paid to Financial Institutions (FIs):

* As per **Section 194A(3)(iii)** of the Income Tax Act, **no TDS is required to be deducted on interest paid to banks and financial institutions**.
* This means if the loan is taken from a bank, scheduled bank, or recognized financial institution, **no TDS on interest**.

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### 2. Interest paid to Private Finance Companies or Non-Financial Institutions:

* If the loan is taken from a **private finance company** or any entity which is **not a bank or a financial institution**, **TDS is required to be deducted** on the interest paid.
* This is because the exemption under Section 194A(3)(iii) applies **only to scheduled banks and notified financial institutions**.
* In such cases, **Section 194A** applies, and **TDS at 10%** (or applicable rate) is deductible on the interest payment to such non-institution lenders.

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### Summary:

| Loan Provider | TDS on Interest Deduction Required? | Section | Remarks |
| -------------------------------- | ----------------------------------- | ------------ | -------------------- |
| Bank or Financial Institution | No | 194A(3)(iii) | Exempted from TDS |
| Private Finance Company / Others | Yes | 194A | TDS @ 10% applicable |

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### Important:

* Check if the lender is notified as a financial institution by CBDT for exemption.
* Always deduct TDS on interest to non-institution lenders to avoid penalty/disallowance.

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