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.
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.