We have a business Loan from a non-Banking finance Company registered with RBI. As is routine such loans are repaid by EMI – Equated Monthly Instalment - having Principal and interest component. We paid full EMI to the NBFC and deposit 10% TDS under section 194A. At the end of financial year, we when demanded credit for TDS paid on their behalf the NBFC is refusing to give such credit to us. Is their action is legally correct
In my view, interest paid to an NBFC is generally liable for TDS under Section 194A, because the exemption available to banking companies etc. does not normally extend to NBFCs. TDS should be deducted only on the interest component of the EMI and not on the principal repayment.
If the borrower has deducted and deposited TDS @ 10% on the interest component using the correct PAN of the NBFC and has filed the TDS return properly, then the NBFC should give credit/adjustment for such TDS. The amount deducted as TDS is deemed to be tax paid on behalf of the NBFC and will appear in the NBFC’s Form 26AS/AIS. Therefore, the NBFC should not treat that portion as unpaid interest, unless there is a specific gross-up or tax-bearing clause in the loan agreement.
Practically, the borrower should provide the NBFC with TDS challans, Form 16A, TDS return details, and request adjustment in the loan account. If they still refuse, the issue should be escalated through their grievance channel.
Gupta Sachdeva & Co. Chartered Accountants
New Delhi
CA Final
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