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CBDT Releases Additional Guidelines For Tax Withholding On Benefit, Perquisite: Dhruva Advisors' Analysis

TDS on benefit or perquisite not applicable to waiver or settlement of loan by certain institutions, tax department clarifies.

<div class="paragraphs"><p>(Photo: Towfiqu Barbhuiya/ Unsplash)</p></div>
(Photo: Towfiqu Barbhuiya/ Unsplash)

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Dhruva Advisors Update

There were expectations that the Central Board of Direct Taxes may release few more guidelines clarifying the scope and applicability of section 194R. The first circular was issued in the month of June 2022. The section requires taxes to be deducted by any person on provision of benefit or perquisite to a resident.

The CBDT provided some guidelines and examples on the scope and coverage of section 194R in the form of 10 questions and answers.  Subsequently, some more clarifications were requested by the stakeholders on various issues.

Hence, the present circular has been issued to provide additional clarifications and thereby with the intended purpose to remove difficulties in implementation of section 194R.

The circular has clarified on applicability of section 194R on several situations such as settlement or waiver of loan, withholding obligation on reimbursements, applicability to expenditure incurred on dealer conferences, withholding implications on issues of bonus/ rights shares, et al.

Many clarifications are in line with industry expectations and are beneficial. However, some of these clarifications are made conditional in particular situations only. If those conditions are not met, then implicitly, the benefit of the circular may not be available, and taxpayers would either have to deduct TDS or it could pave way for further litigation.

Such conditional clarifications may also be perceived to be against the well-established legal principles of taxation. Many of the issues arising from the earlier circular and the provisions still remain unsettled and are likely to create difficulties in implementation of section 194R.

Dhruva Tax Alert - CBDT Releases Additional Guidelines On Withholding Tax Requirements For Benefit And Perquisite.pdf

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