In this Article, I am going to discuss about few transaction relating to ‘one of neglected person’ in the TDS group that is Sec. 194A: TDS on Interest other than Interest on securities.
There are many persons who don’t know the existence of Sec. 194A, so only called him as neglected person.
Section 194A revolves around the word “INTEREST”
Normal business parlance Interest means consideration paid by the borrower/Payee towards for:
1. Money borrowed
2. Debt incurred
Q 1. A firm is paying interest on capital introduced by the partners, is it liable for TDS under Section 194A?
Ans: No.
As same is covered under the exemption list illustrated in section 194A.
Q 2. A real estate company, usually receives advances from customers for booking of Plot/Flat, after some time the company will return the advance amount to the customer along with some addition, on the cancelation of booking or agreement.
With reference to above backdrop, whether company has to deduct TDS on additional Payment under sec.194A?
Ans: No. (No need to do the TDS), however to avoid the risk it is better to do the TDS as per Sec.194A.
I am going to discuss why I said No in the first instance:
Income Tax Act Defines Interest as under:
2(28A) “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;
However, meaning of “Debt” not defined under income tax Act.1961, so in that case we have to see the meaning as per dictionaries/general business parlance or decided case laws.
Example: The company received the advance of Rs.100, on cancellation of contract repaid the amount Rs.105 to customer.
The excess amount i.e. Rs.5 company not paying as interest for “amount borrowed” or “for debt incurred”.
Merely it is a compensation for customer for forgoing its right towards the Plot or Flat.
As it is a compensation, Sec 194A will not apply.
Q 3. An individual, borrowed amount from Bank and friend and paying Rs.50000/- P.M interest to bank and 45000/- P.M interest to friend, Need to deduct TDS under sec.194A? if yes need to take TAN or can he pay the same by using PAN Number?
Ans. In this case TDS Deduction depends case to case.
As Sec.194A will apply to individuals only when T/o. of the previous year to the year in which the payment is made more than 1 Cr in case Business and more than 50lac in case of profession.
It is assumed that individual T/O is more than the limit of Rs.1 Cr and 50lac:
1. For Interested payment to bank no need to deduct the TDS as same is covered under the exemption list illustrated in section 194A.
2. For payment to a friend need to deduct the TDS under Sec.194A.
Re: TAN requirement:
1. Not possible to pay the TDS by using PAN, so need to get the TAN by filing the Form 49B. with NSDL.
2. After allotment of TAN need to file form 26Q. with Traces
Q 4. An individual started the business in the year 2022-23, and he paid Rs.50000 as interest on borrowed funds from his friends, now he has to deduct TDS?
Ans: No. As individual started the business in the Year 2022-23, eventually his T/o in the PY i.e. 2021-22 will be “Nil”. Which means less than Limit of 1Cr and 50lac laid down in the Sec.194A.
So no need to the compliance as per Sec.194A.
Author Bio
