- June 25, 2022
- Posted by: TeamSCK
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w.e.f. 1st JULY 2022, Section 194R
SECTION 194R, (w.e.f. 01-07-2022)
Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten percent of the value or aggregate of value of such benefit or perquisite.
Who has to deduct TDS u/s 194R ?
Any Person responsible for providing any benefit or perquisite to a resident Except where –
- the value of the perquisite provided to such resident during the financial year does not exceed twenty thousand rupees.
- a person being an Individual or a HUF, whose total sales, gross receipts or turnover is less than one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite provided.
- the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.
Guidelines issued by CBDT (Circular No. 12 of 2022 dated 16-06-2022)
CBDT in exercise of the provisions of Section 194R(2) has issued the guidelines for removing the difficulty in application of Section 194R, that have been summarized below –
| Question | Answer |
| Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act? | No. There is no requirement for deductor to verify whether the amount is taxable in the hands of the recipient or any section under which it is taxable. |
| Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate? | Section 194R of the Act clearly brings in its scope the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind. TDS u/s 194R is applicable in all cases. |
| Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is in the form of capital asset? | Courts have held that the asset given as benefit or perquisite may be capital asset in general sense of the term like car, land etc. but in the hands of the recipient it is benefit or perquisite and has accordingly been held to be taxable. Thus, the deductor is required to deduct tax under section 194R of the Act in all cases where benefit or perquisite (of whatever nature) is provided. |
| Whether sales discount, cash discount and rebates are benefit or perquisite? | 1. No tax is required to be deducted under section 194R of the Act on sales discount, cash discount, rebates allowed to customers and cases where seller is selling free items with purchase of a certain no. of items, to avoid difficulties for the sellers. 2. The following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act – 2.1 When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc. 2.2 When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets 2.3 When a person provides free ticket for an event 2.4When a person gives medicine samples free to medical practitioners. The above examples are only illustrative. 3. The tax is required to be deducted in the name of recipient entity since the usage by owner/director/employee/relative is by virtue of their relation with the recipient entity and the benefit/perquisite has been provided by the person to the recipient entity. The recipient entity may further treat this benefit as perquisite given to employees to be taxed u/s 17 of IT Act. 4. In case benefit provided to a doctor working as a consultant in the hospital, the original provider of benefit may directly deduct TDS u/s 194R of the consultant as a recipient. |
| How is the valuation of benefit/perquisite required to be carried out? | 1. The valuation would be the FMV of the benefit or perquisite. 2. Purchase price where the provider has purchased the benefit/perquisite 3. Price charged to its customers for the benefit/perquisite manufactured by the provider 4. GST will not be included for the purpose of the valuation |
| A social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media. Is this product given to such influencer a benefit or perquisite? | 1. If the product is returned to the Company after using for the purpose of rendering service, it is not a benefit/perquisite. 2. If the product is retained, then it is in the nature of benefit/perquisite and tax is to be deducted u/s 194R. |
| Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/perquisite? | Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite in the course of business/profession. 1. If consultant takes reimbursement from the Company of an invoice in name of the Company, then reimbursement by Company is not benefit/perquisite. 2. If the invoice is not in name of the Company and Company makes the payment directly or reimburse to the consultant, it is the benefit/perquisite to the consultant. |
| If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite? | Dealer/business conference is not a benefit/perquisite if held with the prime objective to educate them about product/ product discussion/ teaching sales techniques/ obtaining orders/ addressing queries/ reconciliation of accounts. The following expenses would be considered as benefit or perquisites – •Conference in nature of incentive to selected dealer/customer on achievement of particular targets •Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference •Expenditure incurred for family members accompanying the person attending dealer/business conference •Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference |
| If the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit/perquisite is required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such person be satisfied that tax has been deposited? | Such recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. An alternate given to the provider to deduct tax and pay to the Government after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. |
| It is not clear how this limit of twenty thousand is to be computed for the Financial Year 2022-23? | Value of benefit/perquisite shall be counted from 01-04-2022. Benefit/perquisite provided before 30-06-2022 would not be subjected to TDS u/s 194R. |
Circular No. 12 of 2022 dated 16-06-2022 is attached below for the ready reference – https://www.incometaxindia.gov.in/communications/circular/circular-no-12-2022.pdf
Blog Credits- Pankaj Singh, Article Assistant at Singhi Chugh & Kumar, Chartered Accountants
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