One more compliance which Founder of Private Limited Company often fails to do.

We all borrow funds either from Non-banking financial Company (NBFC) to grow our business and pay Interest in the form of Equated monthly installment (EMI). Merely regular payment of EMI complies the entire requirement?

How would you react if you were asked by professional to deduct Tax deductions of source (TDS) of NBFC on the interest paid to them? Section 194A describes that you shall be liable to deduct TDS at the rate 10% on interest paid to NBFCs if exceeds Rs.5000 during the year.

What I have personally seen in majority of Small and Mid size companies, Founder and managerial personnel fails to comply this section. It’s not their fault. It’s a job of professional to brief those provisions of income tax applicable on them.

Now the question arises how will I deduct TDS of NBFC when EMI is auto debited from bank account?

At the time of signing of agreement with NBFC, there is a clause which mentions that first you have to pay TDS to the government from your own pocket subsequently they shall return you in form of Cheque,DD or other way.

Consequences of non-compliance: Interest will not be considered your business expense, resulting in higher profit/reduction of losses.

NBFC would never say for TDS deduction. It’s your responsibility which you need to comply. The important is, this section is not applied on interest paid to Bank.

Keep reading! And reach out to us if you have any queries and you are looking for a CA in Gurgaon, CA in Faridabad, Delhi for further clarification.

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