Loan waiver not a benefit, banks exempt from 10% TDS for one-time settlement


Banks will not be required to deduct 10% tax at source (TDS) on one-time settlement (OTS) or loan waivers, the Central Board of Direct Taxes said on Tuesday.

CBDT said in a detailed clarification that OTS or loan waiver by a bank will not be treated as a benefit or a perquisite and not face Tax Deducted at Source as they would have to bear the additional cost of tax deduction besides the haircut.

The exemption will be available to all public financial institutions, scheduled banks, cooperative banks, rural development banks, state financial corporations, and state industrial investment corporations.

It would also be available to deposit taking non-banking finance companies, systemically important non-deposit taking NBFCs, and public companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes and asset reconstruction companies.

Budget 2022-23 had introduced a new section, 194R, in the Income Tax Act, which required TDS at a rate of 10% by any person providing any benefit or perquisite exceeding ₹ 20,000 in a year to a resident, arising from his business or profession. Bankers felt the provision made them liable to TDS in case of OTS or loan waivers, which would be treated as benefits to customers and represented the issue to the CBDT seeking clarity.

CBDT also clarified that TDS would not be leviable on issuance of bonus or right shares by listed entities.

According to the clarification, in case a company conducts dealers’ conferences to educate dealers about its products, it would not be considered a perquisite.

Source: Economic Times

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