Whether TDS leviable on processing fees charged by (Non Banking Financial Company ) NBFC?

If yes than under which section of Income Tax Act 1961 i.e. whether under section 194J or 194A?

Under section194J of Income Tax Act 1961, Tax is required to be deducted if payment made to resident in respect of fees for professional or technical services.

Processing Fees does not come under the purview of fees for professional or technical service. Thus it is clear that TDS is not required to be deducted under section194J of Income Tax Act 1961.

Now let’s have a look on section 194A to clear whether TDS leviable on processing fees under section 194A?

Under section 194A of Income Tax Act 1961, Tax is required to be deducted on interest other than on securities.

That is tax is required to be deducted on Interest on fixed deposits Interest on Loans and Advances other than banks, etc.

Now question arises whether definition of interest includes processing fees?

Interest has been defined under section 2(28A) of Income Tax Act 1961

Let’s take a view of definition of interest:

” 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.

Definition of interest is inclusive one and it specifically include any service fee or other charge in respect of the moneys borrowed or debt incurred.

Processing fees is fee charged in respect of the moneys borrowed or debt incurred. Thus it is covered in the definition of interest as specified under section 2(28A) of Income Tax Act 1961.

Thus from the above discussion it is concluded TDS is leviable on processing fees charged by NBFCs under section 194A of Income Tax Act 1961.

 

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