The Finance Bill 2022 has proposed two completely new TDS sections, 194R and 194S, in the Income Tax Act, to be made effective from 1.7.2022. Looking at the swift pace, with which the new TDS sections, are being inserted by the Legislature, year after year, in Chapter XVIIB of the Income Tax Act, 1961, it appears that very soon, the remaining seven sections 194T/U/V/W/X/Y and Z, will also be brought in, to complete the full ABC.
TDS under Section 194R
Deduction of Tax on benefit or perquisite in respect of business or profession: The section provides that a person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from carrying out of a business or exercising of a profession by such resident, shall before providing such benefit or perquisite deduct tax @ 10% in respect of such benefit or perquisite.
Applicable on
- All assesse other than individual and HUF.
- If the total sales, turnover or gross receipts of the Individual / HUF deduct or exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite is provided.
- When the aggregate value of benefits and perquisites provided or likely to be provided to a resident during the financial year exceed Rs. 20,000.
Benefits of Section 194R
The benefits or perquisites proposed to be covered by this new section 194R are those perks, benefits, amenities, or facilities, probably in kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in exercise of such business or profession. Such benefits or perquisites are taxable as business receipts u/s 28(iv) of the Income Tax Act.
Example of Section 194R
Mr. Anoop is a Book Publisher, he made a contract with Mr. Sunil that he will sell books of Mr. Anoop and in return Mr. Anoop will sponsor 5-Star Hotel accommodation and will gift house hold items worth Rs. 2 lakh per-annum. As per Section 194R, such benefits as perquisites like free accommodation, gifted household items are considered as benefits and have direct nexus with business of Mr. Sunil Therefor TDS @10% will be deducted on the value of such benefits that to told cost of 5-star stay and Household.
TDS under Section 194S
Payment on transfer of Virtual Digital Asset:
The section provides that a person being resident or non-resident, responsible for providing to a resident, any sum by the way consideration for transfer of virtual digital asset shall at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier deduct tax @ 1% on it. Since the provision of section 194S applies at the time of credit or payment whichever is earlier, representing consideration for transfer of virtual digital assets, such sum which has been credited or paid before 01.07.2022 would not be subjected to tax deduct u/s 194S.
Payment gateway will not be required to deduct TDS u/s 194S. if transfer of virtual digital assets and against this payment made through online/digital platform then TDS u/s 194S applicable only of transfer on digital virtual assets.
NOT Applicable on
The consideration is payable by Individual or HUF who does not have any income from PGBP.
The consideration is payable by Individual or HUF whose turnover from business is up to Rs. One crore and in case of profession the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year.
The consideration is payable by any person “other than a specified person” i.e Individual and HUF and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
In respect of new section 194S: –
- The sale and purchase of cryptocurrencies usually takes place at the crypto exchanges, just like a stock exchange, where the identity of the buyer and seller is not revealed. So, in such cases, how it will be possible for the buyer to deduct TDS in the name of the seller of such virtual digital asset? In such cases, whether the crypto exchanges will be required to deduct the TDS?
- The current definition of ‘Virtual Digital Asset’ in the newly proposed section 2(47A) in the Income Tax Act, excludes ‘foreign currency’ from its ambit. The most commonly used cryptocurrency, ‘Bitcoin’ has been recognized as ‘legal tender’ in the country El Salvador, w.e.f. 1.9.2021 (as per the Wikipedia), and as such, it is amenable to be considered as a ‘foreign currency’. So, the currently proposed definition of ‘virtual digital asset’ in section 2(47A), will exclude ‘Bitcoin’ from its ambit, which will defeat the very purpose and objective of bringing about this amendment.
Conclusion
Section 194R in its present form would pose a huge compliance challenge for various businesses as there are different types of perquisites & benefits that are provided to their dealers/ distributors/agents/ channel partners etc. Additionally, this section has a few ambiguities with respect to some of its provisions, hence to solve the queries of taxpayers a detailed clarification should be issued. According to section 194S of the Act, any person who is responsible for paying to any resident any sum by way of consideration for transfer of VDA is required to deduct tax.
About the Author
Author is Ruchika Bhagat, FCA helping foreign companies in setting up and closure of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants, is a well-established Chartered Accountancy firm founded in the year 1997 with its head office at New Delhi.
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