TDS ON INTEREST ON MOBILISATION ADVANCE

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XYZ Ltd., a private limited company, has received a mobilisation advance from NPCC Ltd. for a contract. NPCC Ltd. is charging 12% p.a. interest on this advance and deducting it directly from XYZ Ltd.'s running bills. XYZ Ltd. is urgently seeking clarification on whether they are liable to deduct TDS on this interest. They are requesting references to case laws or specific provisions of the Act, particularly concerning FY 22-23, as their audit is due soon. The discussion also touches upon the applicability of Section 196 and notes that it may not apply to Public Sector Undertakings (PSUs).

PRINCE KUMAR SULTANIA

PRINCE KUMAR SULTANIA (Querist)
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16 September 2023 XYZ Ltd. is a private limited company. It has taken mobilisation advance from NPCC Ltd. for the contract awarded. Now NPCC Ltd has charged interest @ 12% p.a. on Mobilisation Advance as per the calculation pre defined in the agreement. The interest is deducted from the running bills alongwith other deductions directly by NPCC Ltd at the time of payment of running bills.

Now the query - Is XYZ Ltd. liable to deduct TDS on interest on mobilisation advance deducted by NPCC Ltd.? If not, please help reference to any case laws or specific provisions of the Act.

Please reply in urgent. Case related to FY 22-23 which is under audit due on 30th Sep, 2023.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 September 2023 TDS applicable, contact NPCC Ltd for tax deduction.
They can give consent for TDS or they have to tell any exemption from TDS.

PRINCE KUMAR SULTANIA

PRINCE KUMAR SULTANIA (Querist)
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16 September 2023 Can Section 196 be applied here?
Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations.
Sec. 196 : Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to—
(i) the Government, or
(ii) the Reserve Bank of India, or
(iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income, or
(iv) a Mutual Fund specified under clause (23D) of section 10,
where such sums is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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17 September 2023 Section 196 not applicable for PSU.

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