Additional Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income-tax Act, 1961

Clarifying Tax Deduction Rules Under Section 194R for Loan Waivers, Reimbursements, and Share Issuance

The circular provides additional guidelines to address difficulties in implementing tax deduction at source under section 194R of the Income-tax Act, effective from July 1, 2022. It clarifies that certain loan waivers or settlements by specified financial institutions are exempt from tax deduction under this section. Reimbursements by a service recipient to a service provider are treated as benefits unless the provider acts as a 'pure agent' under GST rules, in which case no tax deduction is required. If tax is already deducted under other sections on amounts including reimbursements, no further deduction under section 194R is needed. Group benefits difficult to allocate individually may be disallowed as expenses, avoiding tax deduction liability if added back to income. Depreciation on gifted assets is allowed based on the benefit value included in income. The section does not apply to certain international organizations or diplomatic missions. Issuance of bonus or right shares by public companies to all shareholders is not subject to tax deduction under section 194R.