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Tds on loan processing fees

CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)

22 May 2013

Whether TDS is applicable on Loan Processing Fees & Interest paid to PNB Housing Finance Ltd. for loan taken?

If yes, under which Section 194J or 194A ??

Plz suggest with explanations.

Thanks in advance.

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6 Replies

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 22 May 2013

t.d.s. is applicable u/s 194A on interest and processing fees when payment is to non banking financial company.

for full details

/articles/tds-provisions-applicability-17141.asp

Rinav Ashok Khakhar (Tax Lawyer) (2078 Points)
Replied 28 February 2014

Since processing fee is covered under the meaning of interest as defined u/s 2(28A) of the IT Act to my view

hence it need no further explanation and no TDS provisions apply if paid to banks.

Deepak Gandhi (ARTICLE ASSISTANT) (39 Points)
Replied 10 December 2014

While the interest paid to banks is expressly excluded from TDS u/s 194A the processiong fee would not fall under 194A and Banks can not claim it as exempted. In my opinion "processing fees" will fall under Section 194J payment towards technical or professional services. The Government has notofied certain services u/s 194J as "Professional Services" but the banking services is not found there. It is a moot point if the payment will fall under Section 194C of the Income Tax Act. As there is no clarity on exemption it is suggested that the assessees are advised to deduct tax u/s 194J of the Income Tax Act to avoid any dispute late provided such "Processing Fees" exceed the threshold limit of Rs.30,000 as prescribed now. If it is below Rs.30,000 in any case tax need not be deucted.

Manideep (Article Assistant) (222 Points)
Replied 23 February 2015

As per My opinion If at all to deduct TDS on processing fees paid to bank, it should be under 194A and not under 194 J

Reasong for my Conclusion

As per Section 2(28A) defines the term Interest

"Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised

And in As per 194 A ,

The provisions of sub-section (1) shall not apply—

49[(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, 50[does not exceed—

(a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);

It means section 194 A applies if Amount Exceeds Rs.10,000 /-

Manideep (Article Assistant) (222 Points)
Replied 25 February 2015

Processing charges paid to bank are not subjected to TDS under Sec 194A

Section 2(28A) of Income Tax Act defines the term Interest:

Processing charges were covered under definition of Interest under section 2(28A) of Income Tax Act :

As per Section: 194A, proviso about not applicability states as following

The provisions of sub-section (1) shall not apply—

(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, [does not exceed—

ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act) or Co Operative Society engaged
Five thousand rupees- in any other case ( It Applies for other payers)

Interest payments exempted from TDS u/s 194A

Payments of Interest to a banking company, Cooperative Society engaged in banking business, public Institutions, LIC,UTI, Cooperative society carryingon the business of insurance and india infrastructure Finance Ltd as notified by by Notification no :288/2007 dt 10.12.2007