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TDS on unsecured loan fees

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Sajid Khan

75 Points Posted on 12 November 2021

what tds to be deducted on loan fees invoice from any private financial institutions

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Quick Summary

This discussion clarifies the Tax Deducted at Source (TDS) applicable to loan fees charged by private financial institutions. While interest paid to banks regulated by the Banking Regulation Act is exempt from TDS, this exemption does not apply to Non-Banking Financial Companies (NBFCs). Therefore, interest and associated fees paid to NBFCs are subject to TDS deduction at a rate of 10% under Section 194A of the Income Tax Act, 1961.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121521 Points Posted on 12 November 2021

In accordance with the Section 2 (28A) of Income Tax Act, 1961 Interest means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claims or other similar rights or obligation) and includes any service fee or other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilized.

As per Sec 194A if Interest (which includes Processing fees ) is paid to the banking company regulated by Banking Regulation act, it is exempt from TDS deduction.

But since the NBFCs are not governed by Banking Regulation Act, interest paid to NBFCs is subject to TDS deduction u/s 194A