Deduction of tax on benefit or perquisite in respect of business or profession

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 –

  1. the value of the perquisite provided to such resident during the financial year does not  exceed twenty thousand rupees.
  2. 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.
  3. 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 –

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
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
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.
Guidelines issued by CBDT (Circular No. 12 of 2022 dated 16-06-2022)

Circular No. 12 of 2022 dated 16-06-2022 is attached below for the  ready reference –

Blog Credits- Pankaj Singh, Article Assistant at Singhi Chugh & Kumar, Chartered Accountants

Disclaimer-The information/content on this page is for general information and educational purpose only. Nothing shall be construed as any legal advice or practice of law. We are not responsible for any action taken by the user based upon any  information given in this document.

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