TDS on Gold Loan Interest

Dear Mr. Raja,

As per Section 194A of the Income Tax Act 1961, tax has to be deducted out of the interest payments made by specified borrowers to the lender at the rates in force. The rates vary depending on the constitution of the payee (lender). For the category of domestic companies in which NBFC fall, the rate of TDS is presently 20.60% including surcharge of 0% and education cess of 3%. Banking companies, Cooperative societies engaged in banking business, public financial institutions, LIC, UTI, Insurance companies and some other notified institutions are exempted from the purview of this section, implying that if the payment of interest is made to these entities, the borrower is not required to deduct TDS out of the interest payment. This is not available to NBFC even though they are in similar lending activities. This NBFCs have approached to Sir P. Chidambaram (FM) and proposed pre budget Memorandum in last 4-5 years but no amendment are made to Finance Act till date.

For your reference, Extract of Section 194A (3) The provisions of sub-section (1) shall not apply— (iii) to such income credited or paid to—

(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a section194a. co-operative land mortgage bank), or

(b) any financial corporation established by or under a Central, State or Provincial Act, or

(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or

(e) any company or co-operative society carrying on the business of insurance, or

(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;

Regards