Pvt companies required to deduct tax at source while issuing bonus or rights shares

The Central Board of Direct Taxes (CBDT) on Tuesday issued another circular to further clarify issues arising on deduction of tax at source under the newly-inserted Section 194-R in respect of benefits or perquisites provided to residents in cash or in kind in the course of business or profession.

As per the circular, now bank and financial institutions need not deduct tax at source in respect of benefits provided to its borrowers by waiver of loan or advance by way of one-time settlement.

Similarly, a company in which the public is substantially interested need not deduct tax at source while issuing bonus or rights shares.

The implication of this clarification will be that a company in which public is not substantially interested will be required to deduct tax at source while issuing bonus or rights shares despite such receipt of bonus or right shares being not taxable in the hands of the shareholders.

The reasoning given in this circular for exempting a company in which the public is substantially interested from deduction of tax at source while issuing bonus or rights shares equally applies to a private company in which the public is not substantially interested, experts said.

Experts say this circular may be fishing in troubled waters as it is differentiating between taxpayers. Experts also wonder if by doing that the legislative intent is being bypassed by such circulars.

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