Firstly sir I am not a qualified professional.

However, I have paid loan processing fee on a car loan that was rejected and it was far below Rs.20,000. My CA put it under bank charges.

People normally do not pay services charges unless a loan is sanctioned. However, the judgement you gave is quite clear on committment charges. Here as far as the bank is concerned, the day it sanctions a facility it has to arrange the funds and manage its fund position. It pays a cost for such management by means of call market or interest. these are all charged to their p and l as interest. Therefore whatever charges they earn on committment fees are also termed as interest. There has to be a consistency. It is very important to note that there has to be a loan first whether availed or not. That can be only if it is sanctioned.

You are right in a way. earlier nationalised banks were charging a fee only after loans were processed. Then came players like Citibank and they started doling out car loans and charging fee at the time of taking application forms and not refunding in case of rejection. This was because these foreign banks were the only ones doling out loans. there were no private Indian Banks. Now with competition between Nationalised,Private and Foreign Banks, processing fees are taking only after the loan is sanctioned. Therefore it is safely interest expenses whether for capital account or revenue expenditure.

As far as resident banks or even foreign banks operating in India is concerned, I do not think that TDS is being made on any service charges that do not qualify even if required to be done because of the misconception that TDS has not to be deducted on payments made to the Bank. Therefore you should satisfy yourself that the payment is indeed in nature of interest for the general exemption under section 194A to banks is concerned.

However, be more vigilant on payments to non resident banks as the rates of TDS can differ between DTAA and Section 9 and witholding taxes can vary between types of payments. You should not short deduct TDS under this section

Sir , its really suprising you need a CA for your work , u seem to be quite knowledgeable . I mean this aspect was never encountered by me , cos i was always under impression that processing charges are interest . The point is not whether you are qualified or no , the point is you had a valid point . My heart skipped a beat cos i have allowed like crores of processing charges without TDS .

Congrats on your knowledge and in dept analysis .

So it is finally settled , for local bank payments 194A and no other section ?

195 is a different issue as earlier mentioned by me :)

no u can not deduct tds
 

You have to deduct TDS u/s 194J. Loan processing fee is a technical service and that also includes managerial services. The exemption given for non deduction of TDS to Banks is specifically for section 194A. Therefore if you pay more than 20,000 per annum to Bank as processing fees, please deduct TDS.