Analysis of New Clarifications on TDS under section 194R

In this Video Author discussed about the matter of TDS u/s 194R: Analysis of New Clarifications dated 13th Sept. 2022 vide Circular No. 18 of 2022-Income Tax

The topic discussed on the video are listed below.

Provisions under section 194R of Income Tax Act, 1961

TDS u/s 194R on Business Promotion Expenses shall be applicable as follows –

1. The TDS is applicable on Any Person who is providing any benefit/perquisite to any Resident

2. The Benefit/Perquisite is to be in kind/cash and arising from BP,

3. TDS should be deducted at 10% on the value or aggregate of value of such benefit or perquisite:

4. TDS should be deducted before providing such benefit or perquisite

5. TDS applicable even when cash is not sufficient for payment of the same

6. No TDS incase of benefit/perk per person is not more than Rs.20,000 in a FY

7. No TDS when deductor is an Individual/HUF in business/professional with turnover/receipts in business/professional below Rs.1Cr / Rs.50 Lakhs

8. This amendment has taken effect from 1st July 2022.

Circular No. 12 of 2022-Income Tax – Clarifications

CAVEAT: THESE CIRCULARS ARE ONLY FOR REMOVAL OF DIFFICULTIES U/S 194R AND WILL NOT INFLUENCE TAXABILITY IN THE HANDS OF THE RECIPIENTS

Question 3. Is 194R applicable when perk/benefit is in the form of a Capital Asset?

Answer. Yes. However to remove difficulties – incase of loan settlement by Banks/PFIs/SFCs/Certain NBFCs/ Certain other Companies there would be no TDS. Further there would be TDS incase of loan settlement between other Private parties.

Question 4. Are Sales Discount/ Cash Discount/ Rebates are benefits/perquisites & is 194R applicable?

Answer.  They are benefits but no TDS u/s 194R is required to be deducted

Question 4A. Are Incentives/ target trips/ free samples are benefits/perquisites & is 194R applicable?

Answer. They are benefits & TDS u/s 194R is required to be deducted

The question is whether “Post Sale Discount” is a benefit/perquisite? Incase it is then under GST whether these are taxable or not as a supply?

Questio4B. Is 194R applicable on Gifts given to directors/employees of Customers

Answer. Yes, it is applicable and 194R is to be deducted on the PAN of the Organization. The Organization may subsequently deduct TDS on the directors/employees u/s 192 or any other section

Question 7. Whether 194R is applicable on reimbursements to an agent

Answer. Yes – Incase the service provider is not acting as a “Pure Agent” under GST.

No – Incase the service provider is acting as a “Pure Agent” under GST.

However, incase TDS is deducted under any other Section like 194C/194J then no TDS u/s 194R

Question 8. Applicability of 194R incase of dealer conferences?

Answer. Not Applicable incase they are for Educating dealers/Customers about new product/service/obtaining orders/sales techniques/etc

Also All dealers/Customers may/may not be involved provide relaxation u/s 194R

Applicable incase of there is “leisure component”/ for family members/ days before/after the conference

However, incase of stay for one day before/after the conference 194R is not applicable

Incase valuation is not possible, then expenses should not be claimed as a deduction

Question 9. Who will pay TDS amount incase of benefit/perquisite totally in kind, etc?

Answer. Either the recipient or the provider of benefit (as inclusive of the TDS amount)

Further, incase of a capital asset being given as benefit, then the value for depreciation purposes will be the value considered as an income in the hands of the recipient.

Question 6 of Circular No. 18 of 2022-Income Tax – Whether 194R will be applicable to in scope of “UN (Privileges and Immunity Act)”, international organization whose income is exempt, High Commission, legation, commission, consulate and the trade representation of a foreign state.

Answer.  No

Question 7 of Circular No. 18 of 2022-Income Tax – Is Issue of Bonus/Right share is a benefit/Perquisite?

Answer. No. Incase of Public Companies incase bonus/right shares are issued to ALL shareholders

Question 1. Is it necessary for the deductor to ensure that that the person receiving the perk/benefit discloses it as an income u/s 28(iv)?

Answer. No

Question 2. Is 194R applicable to benefits/perquisites in kind only or cash also?

Answer. 194R is applicable on benefits/perquisites both In Cash & kind or partly in Cash & kind.

Question 5. How would Valuation be of the perquisite/benefit be done

Answer. At Fair Market Value (FMV). However, GST would not be included in the Valuation

Question 6. Would the items given to ‘social media influencers’ be subject to TDS

Answer. Yes incase he/she does not return the product back

Question 10. From which date would the threshold of Rs.20,000 be calculated?

Answer. From 1^st July 2022 TDS needs to be deducted for the value of benefit provided post 1^st July 2022 for threshold crossed on and from 1^st April 2022.