Tax

Issuance of bonus/ right shares by public company and loan settlement by banks will not attract TDS: CBDT

Section 194R was introduced with effect from 1st July 2022 to deduct tax at source on benefits or perquisites @10%. 

CBDT thereafter issued guidelines to clarify doubts on the applicability of this section.

To remove difficulties for taxpayers, the Income Tax Department has further issued a set of additional guidelines vide Circular 18 of 2022

These are the key takeaways from the circular:

  1. Banks, NBFCs, and financial institutions would not be required to deduct taxes from one-time loan settlements (OTS) or loan waivers because it would result in additional costs for them on top of the haircuts they already take from OTS and waiver of loans.
  2. Reimbursement of expenses incurred by a service provider on behalf of the service recipient in the course of rendering service will not be subjected to TDS under 194R if the bill is in the name of the service provider. Further, it will also not be deducted if the out-of-pocket expenses are included in the invoice on which TDS has been deducted.
  3. TDS under section 194R is not to be deducted on bonus/ right shares issued by a public company.
  4. Section 194R is not applicable on benefit/perquisite provided by an embassy, high commission, consulate etc.
  5. In case an entity incurs expenditure on a group, and it is difficult to attribute it to each user separately, then they have an option to not deduct tax provided they don’t claim it as an expenditure in the books.

For any clarifications/feedback on the topic, please contact the writer at ektha.surana@clear.in

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