KOCHI: The government decision mandating deduction of income tax at source (TDS) in respect of the debt amount waived by the banks through the one-time settlement (OTS) scheme under Section 194 R of the Income Tax Act has disastrous consequences, according to the Cochin Chamber of Commerce and Industry (CCCI).
As per section 194 R and the Central Board of Direct Taxes (CBDT) circular on the guidelines, banks are required to deduct TDS at 10% on the loan waivers. Firstly, the banks will be required to pay TDS upfront on the loan amount waived and then possibly recover it from the borrower. According to Sreejith S Kumar, secretary of CCCI, banks have taken a tremendous hit on their balance sheets on account of the loan waiver and now they will be required to pay another 10% of the amount waived.“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 crore (being 10% of `2.02 lakh crore) upfront,” he said.
In addition, this would put an additional burden on the banks, especially concerning loan restructuring. Banks through the OTS scheme are already sacrificing their capital. Hence, forcing them to bear the additional TDS would land them in a soup.
K Harikumar, president of CCCI, said, “Banks might shy away from undertaking OTS and this could affect the industry which is now reeling under a global recession. Since the banking system is the key to economic growth and development and is essential to unlocking wealth, creating opportunities, providing jobs and facilitating commerce, the CCCI has submitted a memorandum to the prime minister to consider narrowing down scope of TDS under Section 194 R by not applying the said provisions to the banking industry.”