As per a recent update, several banks have communicated with the Central Board of Direct Taxes (CBDT) seeking clarity on the purview of Section 194R of the Income Tax Act, as they fear that the newly presented provision will empower them to deduct 10% tax at source on incentives given to the big business customers through credit cards.
Section 194R was added in the Budget for Financial Year 2023, and according to it, any person who provides profit or perquisite to a resident arising out of any business or profession practised by such resident shall ensure that tax is deducted at a 10% rate of the value of profit or perquisite. The rules associated with some riders came into effect on July 1.
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There was a meeting with the CBDT last month, where representatives of banks as well as non-banking financial companies wanted to know whether the TDS provision would be applicable to credit card-related incentives. They also show their concern about challenges that will be faced in the classification of each transaction, business or personal, done through credit cards for TDS purposes.
Banks have also taken up the issue of TDS on loans waived via one-time settlement or any other schemes, and relief is expected on the front soon.
A senior banker said the CBDT has been proactive in its advisory. Banks have informed CBDT about the challenges faced in implementing the new TDS provision. He further added that “However, the direct tax authority has refused to defer the applicability of the new clause on the ground that any such move would require parliamentary approval.”
As per the new section (194R), no TDS will be subtracted if the aggregate value of perquisites/benefits to a resident does not exceed Rs.20,000 in a financial year.
Further, the provision shall not apply to a business whose total annual turnover does not exceed Rs 1 crore; In the case of a professional, the limit is Rs 50 lakh.
