As per the Cochin Chamber of Commerce and Industry (CCCI), the government’s decision to mandate the deduction of the income tax at source (TDS) towards the debt amount which is waived by the banks via one-time settlement (OTS) policy beneath section 194R of the income tax act would have bad outcomes.
According to section 194R under TDS and the Central Board of Direct Taxes (CBDT), on the loan waivers, the banks are needed to deduct TDS at 10%. On the waived loan amount, the banks are needed to file the TDS and post that they need to recover the amount from the borrower. Sreejith S Kumar, secretary of CCCI articulated that the bank itself has affected its balance sheets regarding waiving off the loan and now they need to file the other 10% of the amount waived.
The banks would afterwards get burdened regarding the loan restructuring. Much capital has already been sacrificed. Hence, forcing them to bear the additional Tax Deducted at Source (TDS) would land them in a soup.
As a result of a global recession, Banks may be reluctant to undertake OTS, according to K Harikumar, president of CCCI. Due to the importance of the banking system to growth and development, job creation, and facilitating commerce, the CCCI has requested that the Prime Minister consider narrowing the scope of TDS u/s 194 R by excluding the banking industry from the TDS provisions.
“The loan waived or written off by the banks was 2.02 lakh crore in 2020-21 and if the new section is implemented, banks would be required to pay TDS of 20,000 crores (being 10% of `2.02 lakh crore) upfront, he specified.”
