We are paying Proceesing fees to bank after sanction letter is issued but before disbursement. Loan is subject to payment of processing fees. whether tds will be attracted on such processing fees paid to bank.
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I think payment of processing fee will not attract tds.
Mr.Parameswaran you ahve raised a very good point and this, in my view has not been so far tested anywhere. 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. I invite all professionals to give their views.
I will go with Mohan as logically, processing fees paid on business loans taken from Banks or other Financial Institutions can be considered for deduction of Tds u/s 194J.However Tds need not be deducted on processing fees paid for Housing loans as the fees will be capitalised with the cost of the house purchased.
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.
Thanks Gopal ji. I did not see the definition of the term "interest' under the IT Act. Thanks for enlightening me. Now it is clear that TDS will not be applicable as Banking companies are exempt from TDS u/s 194A.
In my opinion processing charges are in the nature of interest and included in the definition of interest as stipulated u/s 2(28A) "interest" means interest payable in any manner in respect of any money borrowed or debt incurred (including deposit, claim or other similar rights or obligation) and included 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 utilised.
and there is no requirement to deduct TDS from payment of interest to any Bank.
Hope this will be useful to you.
If the Processing fees are paid to the NBFC, will it attract TDS u/s 194J ?
Yes as per section section 2(28A) interest includes processing fee, if interest payment made to NBFC is liable to deduction of tax at source, then same is the case with processing fee.
On processing fees TDS will not attract as per Section 194A
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
TDS ON PROCESSING FEE/SERVICE CHARGES IN RESPECT OF LOAN FROM BANK/ NBFC
IN MY OPINION
As defined u/s 2(28A) interest includes any service fee or other charges in respect of moneys borrowed or debt incurred or in respect of credit facility which has not been utilised;
as per above definition processing charges are part of interest hence TDS will be dedutible as per sec 194A.
In case payment is to a bank same is exempt as per sec 194A (3).
In case payment is to NBFC TDS is deductible u/s 194A
Bank Loan Processing Fees To Non Banking Financial Companies (NBFC)
For interest payment to NBFC TDS will be U/S 194J and for other then Interest to NBFC it will be U/S 194A
Where as in case of Bank loan processing fees will be exempt from TDS as Banking Company is Exempt from TDS U/S 194A