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194A of Income Tax Act,1961

Jay Kishan Sharma (Head Article) (249 Points)

27 November 2010

CASE:

suppose a company having major revenue earnings from Interest income,in between it purchases dress materials at higher price and sells it at a lower price to compensate its income..let talk about interest, during the year it had given loan mainly to individuals and HUF and rest to corporate bodies.during the course of its audit, i have found individuals paying interest of Rs 30,000,40,000 to 1,60,000, 2,00,000 but haven't deducted TDS u/s 194A,

1. i want to know whether those individual are eligible to not deduct TDS while paying interest to the company.or its the company who is abiding the law.?

Please give me a solid solution.

2. some individuals account having same opening and closing account, interest not charged in the amount.IS IT CORRECT TO DO..?

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5 Replies

Murtuza Roshan (Practicing Chartered Accountant) (437 Points)
Replied 27 November 2010

TDS should be deducted by the party who pays it & file TDS accordingly!! Co is not in fault

To be at safer side,Co should inform their clients to do so!!!

Jayachandra Naidu (Accountant) (171 Points)
Replied 27 November 2010

TDS should be deducted interest paid on other than securities, i.e interest, etc.., 10% to all individuals

194A

Interest from a Banking Company

Rs. 10,000 per annum

10%

194A

Interest other than from a Banking Co.

Rs. 5,000 per annum

10%

piyushgarg (ambala) (171 Points)
Replied 27 November 2010

When a person 2(31) pays interest to others or when interest paid amount is greater than prescribed limit then person 2(31) is liable to deduct tds. If a person not deduct tds this reason can be. if payee given form no 15g/15h then payer is not liable to deduct tds.or if in previous year payee is not covered u/s 44af then payee is also not liable to deduct tds.

Mayur Arora (CA Final) (295 Points)
Replied 27 November 2010

It may be possible that the interest received from those individuals are not liable to audit u/s 44AB & hence not liable to deduct TDS.

If they are liable to deduct TDS, the co. is safe as the co. has not violated any provisions of the Act.

Talking about Interest not charged on some loans, you have to verify the contract between the co. & those persons and raise the question before the mgt. why interest is not charged on those loans.

Also, if they are directors relative then you must check whether proper records have been made as per Sec. 301 of the Companies Act & refer this point in CARO also.