Q & A: Whether TDS in deductable on Interest based on HP Instalment Basis
P.D.RUNGTA
Query:Whether TDS in deductable on Interest based on HP Instalment Basis
Dear Sir,
Will you please let me know whether any interest paid /payable on Loan based on
HP Purchase Basis is subject to TDS or not when the Finance is from Private
Company. .
Whether there is any circular on TDS regarding Deduction of Tax at Source on
Finance
from Private Companies or not .
Pl have your valued opinion on this matter as the AOS' are at present
pressing hard on
TDS matter.
Rehards.
CA. Asim Kumar De
09830154480
NEW DISCUSSION ON THE SUBJECT
Reply:1
since the introduction of service tax, most of the finance companies are entering into loan agreement in the garb of hire purchase agreement. examine the agreement first. u will certainly find that that was a loan agreement.
TDS is deductible in such a case.
lalit kumar agrawalla, fca
Mob. No. 9332014316
Reply:2
If it is hire charges. what about TDS u/s 194 I ?
Reply:1
Mr de
one has to deduct tds on payment made to private company on a/c of interest
payment even it is on hire.this is as per general provisions and there is no
specific circular as such.
thnks and regds
CA RKRoongta
Reply:2
1061A. Application of section 194A to Hire Purchase Agreements Clarification
One
1. The question of consideration is whether a part of the hire purchase instalment
paid by a hirer to the owner under a hire purchase contract can be deemed to
constitute payment of interest thereby attracting the provisions of section
194A of the Income-tax Act.
2. Section 194A provides that any person, not being an individual or a Hindu
Undivided Family who is responsible for paying to a resident any income by way
of interest other than income chargeable under the head interest on securities
shall, at the time of credit of such income to the account of the payee or at
the time of payment thereof in cash, or by issue of a cheque or draft or by any
other mode, deduct income-tax thereon at the rates in force. The obligation to
make deduction under section 194 would arise in the case of payment of any
income by way of interest.
3. The ex-pression ‘interest’ has been defined in section 2(28A) to mean interest
payable in any manner in respect of any money 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 in respect of any credit facility which has not
been utilised.
4. It has to be considered whether the payment of any instalment or instalments
under a hire purchase agreement can be said to be by way of interest in respect
of any moneys borrowed or debt incurred. In this context, it has to be borne in
mind that a hire purchase agreement is a
composite transaction made up of two elements bailment and sale. In such an agreement,
the hirer may not be bound to purchase the thing hired. It is a contract
whereby the owner delivers goods to another person upon terms on which the
hirer is to hire them at a fixed periodical rental. The hirer has also the
option purchasing the goods by paying the total amount of the agreed hire at
any time or of returning before the total amount is paid.
What is involved in the present reference is the real nature of the fixed periodical
rental payable under a hire purchase agreement.
5. It may be pointed out that part of the amount of the hire purchase price is
towards the hire and part towards the payment of price. The agreed amount
payable by the hirer in periodical instalments cannot be characterised as
interest payable in any manner within the meaning of
section 2(28A) of the Income-tax Act. It is in the nature of a fixed periodical
rental under which the hire purchase takes place.
6. It is true that the definition of the hire purchase price in section 2(d) of
the Hire Purchase Act, 1972, also refers to any sum payable by the hirer under
the hire purchase agreement by way of deposit or other initial payment or
credit or amounts to be credited to him under such agreement on account of any
such deposit or payment. But such deposit or payment is not
in respect of any money borrowed or debt incurred within the meaning of section
2(28A) of the Income-tax Act.
7. In view of the above, it would appear that the provisions of section 194A
will not be attracted in the case of payment of periodical instalments under a
hire purchase agreement.
Instruction : No. OP 275/9/80-IT(B), dated 25-1-1981 [See Ashok Leyland Finance
Ltd. v. Asstt. CIT [2002] 80 ITD 566 (Chennai).]
Clarification Two
1. ** ** **
2. In a hire-purchase contract the owner delivers goods to another person upon
terms on which the hirer is to hire them at a fixed periodical rental. The hirer
has also the option of purchasing the goods by paying the total amount of
agreed hire at any time or of returning the same before the total amount is
paid. It may be pointed out that part of the amount of the
hire purchase price is towards the hire and part towards the payment of price.
The agreed amount payable by the hirer in periodical instalments cannot,
therefore, be characterised as interest payable in any manner within the
meaning of section 2(28A) of the Income-tax Act, as it is not in respect of any
money borrowed or debt incurred. In this view of the matter
it is clarified that the provisions of section 194A of the Income-tax Act are
not attracted in such transactions.
Instruction : No. 1425, dated 16-11-1981 [See Ashok Leyland’s case (supra)].
Reply:3
Dear Mr.Asim,
Please examine the agreement, whether it is loan agreement or HP agreement.
If it is loan agreement, then TDS applicable.
Regards
PRAVIIN CHAUDHRY
Reply:4
yes,tds is to be deducted if the intt payer i.e.hirer is
otherwise liable for tds ie. if ind/huf,its a/c are subject to tax audit
u/s 44ab.the status of financier whether a company or not is immaterial.the
liability is payer based.
if its a case of lease the rate of deuction is less
vinod kr.goyal
Reply:5
yes , TDS has to be deducted on hire purchase interest if it
from a pvt company. I have found that such interest paid to
citibank NBFC is getting TDS deducted from payment made to it and
also has lower TDS certifcicate for it.
thanks
Best Regards,
Pramod Dayal Rungta
M.Com.,LL.B.,AICWA.,DISA(ICAI).,FCA
Member EIRC ICAI (2010-12)
P.D.Rungta & Co.
Chartered Accountants
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vinod goyal
sunil jain
We all are enlighted by your responce to which i tend to amend as under.
WHETHER THIS PROVISION SHALL BE APPLICABLE ONLY TO HIRE PURCHASE AGREEMENTS OR IT SHALL COVER ALL TRANSECTION LIKE LOAN AGIANST PROPERTY OR GOLD OR SIMILAR PROPERTY WHERE THE BORROWER PLEDGED ITS ASSETS AGAINST LOAN WHICH IS REPAYABLE IN MONTHLY INSTALEMENTS COMMONLY KNOWN AS EMI COMRISING BOTH PRINCIPAL AND INTEREST COMPONENTS.
CA. SUNIL KUMAR JAIN
Date: Tue, 15 Nov 2011 19:11:21 +0530
From: vkg_a...@yahoo.com
Subject: [PDRUNGTA] Whether TDS in deductable on Interest based on HP Instalment Basis-ref. to it circular
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vinod goyal
From: Satish Patodia <spai...@yahoo.com>
To: foru...@googlegroups.com
Cc: vkg_a...@yahoo.com
Sent: Wednesday, 16 November 2011 8:33 PM
Subject: Re: [PDRUNGTA] Whether TDS in deductable on Interest based on HP Instalment Basis-ref. to it circular
Sir Please explain the followings:- It may be noted that TDS was not deductible on rent for hire of machinery
when such instructions were issued? --- On Tue, 11/15/11, vinod goyal <vkg_a...@yahoo.com> wrote: |
|
vinod goyal
From: sunil jain <suni...@hotmail.com>
To: forumforCA <foru...@googlegroups.com>
Sent: Wednesday, 16 November 2011 11:29 AM
Subject: RE: [PDRUNGTA] Whether TDS in deductable on Interest based on HP Instalment Basis-ref. to it circular
vinod goyal
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