Tds on interest

Yes, under section 194A TDS has to be deducted on the interest if amount exceeds Rs. 10,000 at rate of 10%.

But the problem faced by deducters is how to deduct TDS on interest payment to NBFC as interest is including in installments and there is no way that payment can be done after deducting. Solution is to gross up the interest amount and pay TDS. After that we can ask for refund from NBFC of TDS deposited.

For e.g.

Installment is of Rs. 100 including principle of Rs. 55 and interest of Rs. 45.

Gross up the interest part by assuming it is 90% i.e. 45/90*100 = 50.

TDS amount on gross up interest is Rs. 5(50*10%).

File TDS return after submitting the TDS, issue TDS certificate and ask for refund from NBFC as it will reflect in their 26AS.