Bank loans

One-time settlement of bank loans would not attract tax, says CBDT

The Central Board of Direct Taxation (CBDT) clarified that the single bank loan settlement would not attract tax under Section 194R of the Income Tax Act 1961.

The new article obliges a person, who is responsible for providing a benefit or an indirect advantage to a resident, to deduct withholding tax @ 10% of the value or the whole of the value of this advantage or indirect advantage , before providing this benefit or indirect benefit. The benefit or indirect advantage may or may not be convertible into money, but must arise either from the exercise of a commercial activity, or the exercise of a profession, by this resident.

Regarding the treatment of the waiver or settlement of the loan by the bank as a perquisite benefit, the circular clarified that it could be income for the person who took out the loan.

“It is also true that subjecting such a transaction to a tax deduction under Section 194R of the Act would result in an additional cost to that bank, as it would require the payment of tax by the deductor in addition to making it already a haircut.Therefore, to remove the difficulty, it is clarified that the settlement of a one-time loan with the borrowers or the waiver of the loan granted when entering into a settlement with the borrowers by the following would not not subject to withholding tax at source under section 194R of the law”, the said circular.

The circular stated that there may be expenses during this dealer/business conference which should be classified as benefit/gratuitous and tax should be deducted under Section 194R of the Act. However, there may be practical difficulties in identifying such a benefit/benefit to the actual beneficiary due to the fact that it is a group activity and a reasonable allocation is not possible. Failure to comply with the provision of Section 194R of the Act, in such a case, would not only result in rejection under paragraph (ia) of Section 40 of the Act, but could also result in the treatment of the perquisites/benefits provider as a person assessed in default under section 201 of the Act with all other consequences. “In order to eliminate such practical difficulties, it is specified that if the benefit/benefit is provided in a group activity in such a way that it is difficult to match that benefit/benefit to each participant using of a reasonable distribution key, the supplier of the advantage/advantage may, at his choice, not claim the expense, representing this indirect advantage/advantage, as a deductible expense for the calculation of his total income. to so elect, he will not be required to deduct tax under Section 194R on such perquisite/benefit and, therefore, he will not be treated as the assessee in default under Section 20 I of the law. Thus, in such a case, he must add back the expenses, representing this advantage / gratuity, to calculate his total income if these expenses are debited from the account, “said the Council.

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