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Pvt companies must withhold withholding tax on issuance of bonus or rights shares

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



According to the circular, banks and financial institutions no longer have to do that: deduct tax at source in respect of benefits provided to its borrowers through loan waiver or advance through one-off settlement.

Likewise, a company in which the public has a significant interest in the issue is not required to withhold a withholding tax bonus or rights shares.

The implication of this clarification will be that a company in which the public is not substantially interested will be required to withhold tax on the issuance of bonus or entitlement shares, despite the fact that such receipt of bonus or entitlement shares is not taxable. in the hands of the shareholders.

The reasoning given in this circular to exempt a company in which the public has a substantial interest from withholding tax while issuing bonus or entitlement shares applies equally to a privately held company in which the public has no material interest. interested, experts say.

Experts say this circular may be fishing in murky waters as it discriminates between taxpayers. Experts also wonder whether such circulars circumvent the intention of the legislator.

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