Banks to move government on TDS on loan waivers

Slices of loans waived to lessen the strain on defaulting borrowers are being interpreted as ‘benefits’ that lenders are passing on to borrowers under the new provisions the government has come out on tax deducted at source (TDS).

Even though there is no transfer of cash from the bank to the borrower, the extent of haircuts taken by lenders is imputed as ‘income’ for the borrower.

For instance, if a bank cuts the loan outstanding from ₹100 crore to ₹40 crore as the borrower is unable to repay or arrange periodic interest outgo, the bank will have to pay a 10% TDS of ₹6 crore on the ₹60 crore which is written off from the full loan amount.

“This would put an additional burden on banks in the course of loan restructuring. We feel this particular TDS provision was inserted without adequate consultation and understanding of the consequences. It’s a strange situation where the bank has to make a sacrifice on account of waiver as well as organise for TDS. We have decided to pursue the matter with the government,” a senior banker told ET.