TDS ON INTEREST OF BG TO SUPPLIER

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This discussion clarifies whether Tax Deducted at Source (TDS) is applicable on interest paid to a supplier for a Bank Guarantee (BG). The consensus is that if the supplier charges interest for the BG facility, it is considered interest income. Therefore, TDS under Section 194A would likely apply if the annual interest exceeds ₹5,000, with a deduction rate of 10% if PAN is provided and 20% otherwise.

Mahendra Patel

Mahendra Patel (Querist)
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01 June 2021 Dear Sir,

We have a bank guarantee from our bank and which we provide to our supplier and purchase material from the supplier against this BG.

and supplier charged to interest on BG limit

so my question is hear " Bank Guarantee interest Paid to our supplier Will Attract TDS ?

Amount of interest monthly appx 1.00 lakh.

Thank you
Kindly guide us.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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01 June 2021 TDS applicable on such interest payments.

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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05 June 2021 section 194A applicable interest paid more than 5000 PA TDS NEED TO BE DEDUCTED @10% FOR PAN FURNISHED BY ASSESSEE ,20% IF ASSESSEE DOSEN'T FURNISH PAN

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