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Tds on personal loan?

Aditya (Student CA Final ) (136 Points)

06 May 2013

An individual has taken personal unsecured loan. Its interest crosses tds limit of Rs. 5000.

That individual also has a proprietor business which crosses the limit of sec. 44AB. However, the above mentioned loan is not for business purpose, nor is the interest paid from such business.

The loan is taken in personal capacity and the interest is also paid in personal capacity.

So, is TDS to be deducted on interest of such personal loan?

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10 Replies

Ayushi Agarwal (Article) (161 Points)
Replied 06 May 2013

No..he's not required to deduct TDS from such payment..

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 06 May 2013

In Your Case, Important is If you have utilised the funds for your proprietorship firm, then you have to deduct TDS.

That you have to prove in Department.

Ashish Ranpara (TAX CONSULTANT) (369 Points)
Replied 06 May 2013

No to Decut TDS on Such Amount

as per Income Tax Act 1956 Sec 194A(b) Any Payment to Banking Company, Co-op. society engaged in banking business, p ublic financial institutions, teh lic of india, the utr , a company or co-op. society carrying on the business of insurance, or notified institutions.

Aditya (Student CA Final ) (136 Points)
Replied 06 May 2013

The loan is taken from other individual. It is not taken from any financial institution , so 194A(b) will not be applicable here.

@ Ayush Sir,

The loan has no relation or connection to proprietorship firm, so there is no need to deduct TDS on payment?

My confusing point is that : TDS provision says that Individual to whom sec 44AB is applicable has to deduct TDS. So the section may have the nature of engulfing all payments by such individual, whether for business or personal purpose. I want to confirm whether the applicability is restricted to business payments.

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 07 May 2013

Dear Aditya,

In Your Case TDS is not Applicable, Since any amount paid for personal expenses are not liable to deduct TDS.

and You Already Said There is No Connection with Business. But Just Keep in Mind When There will be Enquiry, then You have to Prove the same in Department.

Thanks.

1 Like

(Guest)

Ayush is right, It needs to proven ,if any objection raised, whether the loan amount is utilised in business or not.

Moreover, it is not necessary to claim such interest as expense first under PGBP, to deduct TDS or vice versa.

If liabilty for TDS arise, it is immaterial whether the amount record as expense or not, the person is liable to deduct TDS.

CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
Replied 08 May 2013

Except Section 194I No Need to Deduct TDS on Personal Expenses

The section 194I has used the word "building" meaning therby that there is no distinction between residetial and commercial building. Therefore,in the case of rent on residential buildings as well, the tenant has to deduction tax under section 194I subject to the satisfaction of other conditions mentioned therein.

(Guest)

The following is my view.

It is not clearly mentioned for what purpose the loan amount is utilised moreover the nexus between the loan amount and its utilisation is under suspectation and the loan is taken from persoal sources rather than from financial institution.

The compilation of all factors suggests that the intention of assesse is to used the loan amount for the purpose of business and profession.

If assesse utilizes the amount other than for B & P but for the purpose to gain any other income , he is still liable to deduct TDS.

he is also liable to deduct TDS if he used the amount to construct or purchase a house.