Loan waiver by banks is not a benefit and hence doesn't attract TDS liability.
Context:
Budget 2022- 23 introduced a new section on 194R taking effect from 01st July 2022, which provided that TDS at rate of 10% has to be deducted by any person providing any benefit or perquisite exceeding Rs. 20,000 in a year, to a resident, on the value of such benefit.
The said perquisite or benefit received by the resident, must be on account of him carrying on business/exercising a profession. The perquisite can be in cash or kind or partly in both.
Banks raised concerns over the applicability of the provision for the case of loan waivers and one time settlements.
The waived amount could be treated as benefit since that relief is in nature of income to the debtor and the banks would be facing additional cost of deducting TDS, apart from cost burden of loan waivers.
Clarification details:
CBDT has issued a clarification that one-time settlements or loan waivers by banks will not be treated as provision of benefit or perquisite by the bank to the customer. and would not be subjected to tax deduction at source under S.194R of Income tax act.
This exemption is available to:
Public financial institutions, scheduled banks
Co-operative banks, Rural development banks
State financial corporations, state industrial investment corporations
Deposit taking NBFCs, Systemically important non-deposit taking NBFCs
Asset reconstruction companies
Public Cos engaged in providing finance for residential house purchase or construction.