Section 194R – TDS on benefits or perquisite provided
In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable e.f. 1.7.2022.
Eligibility criteria for tax deductor :-
Any person (Resident or Non Resident) 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 u/s 194R.
The responsibility for tax deduction also does not apply to a person, being individual/Hindu undivided family (HUF) deductor, whose total sales/ gross receipts/ gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provide by him.
Certain condition for tax deduction :-
- Only resident Payees are covered u/s 194R
- The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident.
- The perquisites can either be in cash, in-kind, or partly in both of these forms.
- The taxpayer does need to check the taxability of the sum in the hands of the recipient, and the nature of the asset given as benefit or prerequisite is not relevant
- For F.Y. 2022-23, the Value of Benefit or Perquisite given in the Period from 1.4.2022 to 30.6.2022, will be counted and considered for determining the threshold limit of Rs. 20,000 in a year, but TDS u/s 194R will not be deducted on such Benefits or Perquisites. TDS u/s 194R will be deducted only on those Benefits or Perquisites which are provided or given on or after 1.7.2022.
- Deductor is under no obligation to check to whether the benefit provided is taxable as business income for the recipient or not.
Amount of Deduction
- Any person (Resident or Non resident), who is responsible for providing any benefit or prerequisite to a resident, to deduct tax at source (TDS) at a rate of 10% of the value or aggregate of the value of such benefit or perquisite provided or likely to be provided to the resident during the financial year exceed Rs. 20,000 in a year, per recipient.
- TDS u/s 194R is to be deducted on fair market value of the benefit or perquisite, however if deductor has purchased the benefit/perquisite before providing it to the recipient. In that case, the purchase price (Actual cost) shall be the value for such benefit/perquisite. Further, if the deductor manufactures such item then the price that it charges to its customers for such item shall be the value for such benefit / perquisite.
- GST is to be excluded from the Purchase Value or Fair Market Value of such Benefit or Perquisite, for the Purpose of TDS Deduction.
Some Practical scenarios while applying section 194 R
| Sr. No. | Nature of benefit or perquisite | Applicability |
| 1. | Whether benefit to employee under 17(2) covered | No, because sec.194R cover only in the course of business or profession. |
| 2. | Capital Assets | Capital assets like car, land etc. given as benefit or perquisite would be covered within the ambit of deduction of TDS u/s 194R |
| 3. | TDS implication on dealer/ Trader | |
| – Sales discount, cash discount or rebates | No TDS required to deducted u/s 194R | |
| – Seller giving incentive | Section 194R shall apply to sellers giving incentives, other than discounts or rebates, which are in cash or kind e.g., car, TV, sponsored trips, free tickets, medicine samples to medical practitioners. | |
| – gift to supplier on celebrate successful completion of project. festival occasions, marriage occasion etc. only those benefit/perquisite, which arise out of business/ profession | Section 194R shall apply because the benefit in the course of business/ profession. | |
| – Incentive or gift for target completion | Section 194R shall apply on provide incentive or gift on target completion. | |
| – Free sample | Section 194R shall apply on provide free sample in the course of business/ profession | |
| – Sponsors a trip upon achieving target | Section 194R shall apply when a person sponsors a trip for the recipient and his/her relatives upon achieving certain target | |
| – Provide free ticket for an event | Section 194R shall apply when a person provides free ticket for an event | |
– Dealer conference
|
Subject to Deduction of TDS @ 10% on Fair Market Value of Such Incentives in Cash or Kind, or on Purchase Value, if acquired, before providing these, if the aggregate value of such Incentives exceeds Rs. 20,000/- in a year, per recipient. | |
| – Dealer conference
expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite for the purposes of section 194R of the Act in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
|
TDS u/s 194 not attract. Such conference must not be in the nature of incentive / benefit to select dealers/ customer who have achieved particular targets. | |
| – Insurance coverage for the dealer and his employee/ family | TDS deduct u/s 194R on Fair maket value or actual cost of such insurance. | |
| – Rewards (cash back)/ prepaid vouchers in the form of discount on future purchases | TDS deduct u/s 194R on Fair Market Value of Such Incentives in Cash or Kind, or on Purchase Value. | |
| – Extend credit period | TDS deduct u/s 194R on fair market value/ opportunity cost of such extended period | |
| Deemed basis on Incentive given
– Benefit / perquisite used by owner /director /employee/relative of the recipient who in their individual capacity may not be carrying on business or exercising a profession. |
TDS u/s 194R is required to be deducted by the person 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 in substance the benefit/perquisite has been provided by the person to the recipient entity. |
|
| 4. | TDS implication on medical practitioners | |
| – Provide free sample to medical practitioners | Section 194R shall apply on fair market value on such item | |
| – distribution of free samples to the hospital for doctors
(Doctor working as employee of the hospital) |
TDS u/s 194R required to be deducted by the company in the hands of the hospital when distribution of free samples to the hospital for doctors receiving free samples of medicines while employed in a hospital. The hospital as an employer may treat such samples as a taxable perquisite for employees and deduct tax under Section 192. For those, the threshold of ₹20,000 has to be seen concerning the hospital. | |
| – distribution of free samples to the hospital for doctors
(Doctor working as consultant of hospital) |
TDS u/s 194R required to be deduct While for doctors working as consultants with a hospital and receiving free samples, TDS would apply to the hospital first as a recipient, then hospital may again deduct TDS u/s 194R to the consultant for providing the same benefit or perquisite. | |
| 5. | TDS implication on Government entity | The provision of section 194R shall not apply to a government entity like government hospital that is not carrying on business or profession. |
| 6. | TDS implication on social media influencer | |
| – social media influencer is given a product (like car, mobile, outfit, cosmetic etc.) of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media
(IF product is return to the manufacturer after using for the purpose of rendering service) |
It will not treated as benefit / perquisite so TDS u/s 194R not attract because product is return to the manufacturer after using for the purpose of rendering service. | |
| – social media influencer is given a product (like car, mobile, outfit, cosmetic etc.) of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media
(IF product is retained after using for the purpose of rendering service)
|
It will be in the nature of benefit or perquisite so TDS u/s 194R required to deduct because product is retained after using for the purpose of rendering service. | |
| 7. | TDS implication on reimbursement expenses | |
| – Reimbursement of out of pocket expenses incurred by service provider in course of rendering service.
(Out of pocket expenses incurred by service provider with invoice in name of service recipient) |
Expenses paid by service provider is incurred wholly and exclusively for the purpose of rendering service and invoice is in the name of company (service recipient) and then reimbursement made by company being the service recipient will not be considered as a benefit / perquisite so TDS u/s 194R not attract. | |
| – Reimbursement of out of pocket expenses incurred by service provider in course of rendering service.
(Out of pocket expenses incurred by service provider with invoice in name of service provider) |
If invoice is in the name of service provider and payment is made by company directly or reimbursement, it is the benefit/ perquisite provided by company to the service provider for which TDS u/s 194R required to deduct. |
Example
| Particular | Example -1 | Example-2 | Example-3 |
| Payer | MJ limited | MJ limited | MJ limited |
| Receiver | Resident person | Resident employee | Resident person |
| Benefit / perk amount | Rs. 65,000 on 15.07.2022 | Rs. 65,000 on 15.07.2022 | Rs. 19,000 on 25.06.2022 & rs.5,000 on 15.07.2022 |
| Applicability of sec. 194R | Yes | No | Yes |
| TDS on amount | 65,000 | – | 5,000 |
| TDS amount | 6,500 | – | 5,00 |
| Reason | Exceed aggregate limit of Rs. 20,0000 | Benefit provided to employee, TDS deduct u/s 192 | Exceed aggregate limit of Rs. 20,000 (whole FY amount considered for calculation of limit |
–
| Particular | Example -4 | Example-5 | Example-6 |
| Payer | MJ limited | MJ limited | MJ limited |
| Receiver | Resident person | Resident employee | Resident person |
| Benefit / perk amount | 25,000 on 10.10.2022 on the occasion of Diwali | 25,000 on 10.10.2022 on the occasion of Diwali | Rs. 50,000 on 25.07.2022 of trade discount |
| Applicability of sec. 194R | Yes | No | No |
| TDS on amount | 25,000 | – | – |
| TDS amount | 2,500 | – | – |
| Reason | Limit exceeds of Rs. 20,000 (TDS deduction on Rs. 25,000 due to given on the occasion of Diwali which is the relation to business) | Benefit provided to employee, TDS deduct u/s 192 | Trade discount is not a benefit so TDS u/s 194R not deduct, (if agreement specially mentioned for incentive than TDS deductible) |
–
| Particular | Example-7 | Example-8 | Example-9 |
| Payer | MJ limited (Turnover below Rs. 1 crore) | MJ limited | MJ limited |
| Receiver | Resident person | Resident person | Resident person |
| Benefit / perk amount | 80,000 on 25.07.2022 | 80,000 on 20.06.2022 | Rs. 1,50,000 on 15.08.2022 of winning games |
| Applicability of sec. 194R | No | No | No |
| TDS on amount | – | – | – |
| TDS amount | – | – | – |
| Reason | Payer is individual having turnover below Rs. 1 crore | Benefits given before 01.07.2022 | Amount given for winning lottery /games TDS will be deducted u/s 194B not u/s 194R |
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Author Bio
Running a small Enterprise with about 50 employees on the roll, turn over more than Rs 1 crore. Salary, EPF & GST for the employees is being paid by the Principle employer. However, when the insurance of the employees was made and claimed from principle employer, TDS was deducted under section 194R. Is the deduction valid if so how? Pl explain
rewards received from credit card issuing Banks are whether taxable ?
Is credit notes raised against gold or silver to the customer is applicable for 194R ???
I’m a consultant in a NGO & visit various locations for data collection. Will my expenditure on travel and stay fall under section 194R. (Note-Train and air tickets cannot be issued in the name of my organization).
The Company is sponsoring Trip for their dealers through the tour operators. The company is paying amount to Tour operator for the airline, accomodation and many more. under sec 194R tds deduction will be against the tour operator or dealer account as payment is directly being paid to Tour Operator. tour operator will provide invoice after charging 5% TCS. Reply Please
The Company is sponsoring Trip for their dealers through the tour operators. The company is paying amount to Tour operator for the airline, accomodation and many more. under sec 194R tds deduction will be against the tour operator or dealer account as payment is directly being paid to dealer. tour operator will provide invoice after charging 5% tcs
Sir, Is 194(R) of Income Tax Act is applicable for Sacrifice given under OTS. Is it applicable to all Individuals and Firms or Is there any exemption . So much confusion about the implementation of this act. Please guide us.
Chandrashekhar Panakanti
What is in case of Following situation
A is a company whose products gets sold by B (A distributor) to multiple outlets. On account of sales targets achieved in the previous month, company A provides incentives to outlets in the current month by providing post GST deduction form the Sales invoice raised by Distributor B in the current period. afterwards the company reimburses the incentive amounts to Distributor B. in this case who is liable to deduct and deposit TDS u/s. 194R
If Silver coin is distributed as sale scheme is 194r is applicable . what will effect to dealer who receive the silver coin
So for example i give 50k worth mobile to a social media influencer, does this mean that 5k i have to collect from him?
Because otherwise my total cost becomes 50+5 tds = 55 and practically i am not deducting any tax, instead paying it for him.
what about Car given to a Director (rendering consultancy services) for business use. should we take value of the Car for deducting TDS u/s 194R?
In example no 7,The payer is a limited company and reciever is an individual and this section covers only individual and huf with less than 1 cr and 50 lakh limit and this limit does not apply on company.so,in example no 7 payer MJ Limited Having turnover below 1 cr should be deducted TDS.Please Give me clarity on this point if i am wrong.
yes MJ limited deduct TDS u/s 194S
sec 194R
I am for 194R
If car value issued as credit note against customer debit balance. 194R Applicable or not?
your question is not clear ,kindly resent with detail.