Tds implications on co lending activities of bank and nbfc

Payment of interest requires withholding of tax in terms of s.194A.  No deduction however is required if payment is being made to a bank but deduction will be required for payment to NBFC.

While I don’t see any precedent as regards co lending arrangement as of now.  But how I look at the things is that co lending to priority sector happens with involvement of bank, NBFC and borrower in terms of RBI guidelines.  

However, RBI guidelines in respect of co lending arrangement provides for a common escrow account for pooling respective loan contributions as well as disbursal and also for appropriation of loan repayments. They also provide for entering into a Master Agreement to specify the manner of appropriation between co lenders.     If all installments are received in an escrow account, terms of escrow account agreement and master agreement between co lenders along side the agreement with the borrower could possibly determine what component that could be considered to have been paid to NBFC and subject to TDS.  

Author: Advocate Ravish Bhatt 
Gmail: ravishdbhatt @ gmail.com 
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