“Understand Section 194R TDS implications on benefits or perquisites in business or profession from July 1, 2022. Check our comprehensive guide on compliance, rates, and exemptions. Stay informed to avoid penalties.”
Very Important : To Check whether TDS deducted under section 194R of Income Tax Tax Act on benefits or perquisites given in course of business or profession As Effective from 01.07.2022
1. We would like to bring to your notice an important change brought by the Finance Act 2022 by insertion of a new section 194R, effective from 1st July 2022in a bid to further extend the tax base. It stipulates TDS deduction on benefit or perquisite in respect of business or profession.
According to this newly inserted section, 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 10% in case the value or aggregate of value of such benefit or perquisite exceeds Rs 20,000/- during the financial year.
We attach herewith our detailed compilation on these new provisions as came into effect from 1st July 2022, alongwith CBDT circular as issued & bare provision of Sec 194R as issued. Pl go through the same carefully.
Hope you’ve been taking all steps to ensure compliance to this section as effective from 01.07.2022.
2. Why this compliance being reminded again now :
Most businesses incur expenses on business promotion wherein certain gift items are given to 3rd parties like cars, mobiles, laptops, gold coins, etc., or allow various benefits to customers like sponsoring of holiday trips, giving of free tickets for an event, etc. in normal course of business . Pl do check that each such gift or benefit or perquisite, as allowed on or after 01.07.2022, is not exceeding Rs.20000/- per gift item or else TDS u/s 194R gets deductible. This is apart from taking care that no GST input credit has been availed on purchase of such items given subsequently by way of gifts.
Since the accounts for FY 2022-23 are under finalization at your end, we advise that your accounts department has a careful look on all expenses as debited to any such ledger, like “Business Promotion”, or whatever name as may be, accounted in books of account and deduct TDS as may be applicable if left out. Deposit such TDS immediately (with applicable interest) and factor in the eTDS return as to be filed for Mar 2023 quarter (due on 31.05.2023).
Income Tax Department
28[Deduction of tax on benefit or perquisite in respect of business or profession.29
194R. (1) 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 per cent of the value or aggregate of value of such benefit or perquisite:
Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:
Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:
Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed 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, as the case may be, is provided by such person.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation.—For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.]
Section 194R of Income-tax Act, 1961 – Guidelines & FAQs
Tax Deduction At Source (TDS) under Section 194R of The Income Tax Act, 1961 (effective from 01.07.2022)
To further extend the tax base, the government has introduced a new section 194R of the Act vide the Finance Act 2022 and effective from 1st July 2022, which is reproduced as under:
Deduction of tax at source on benefit or perquisite in respect of business or profession.
194R. (1) 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:
Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:
Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed Rs 20,000/-.
Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed
> 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, as the case may be, is provided by such person.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation.—For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.
Analysis of Section 194R
- Applicability:
> This section will be applicable with effect from 01.07.2022
- Conditions when this section shall trigger
> Any person, providing any benefit or perquisite,
> exceeding Rs. 20,000 in value, in a year, to a resident,
> arising from the business or profession of such resident
> requires deduction of tax at source @ 10%,
> shall before releasing the benefits or perquisites deduct TDS.
- Non-Applicability of this section
> Individual or HUF providing benefits or perquisite,
- whose total sales or turnover <= 1crore in case of business or
- gross receipts <= 50 lakhs in case of profession,
during the financial year, immediately preceding the FY in which benefits or perquisite provided by the service provider
> If the value of benefits or perquisite <= Rs 20,000 during the FY.
> If the recipient is non-resident.
> If sales discount, cash discount or rebates allowed to customers from listed retail price.
> benefit or perquisite provided to employees as part of employment.
Note:
1. Deductor shall be any person including non-resident having permanent establishment in India.
2. Deductee shall be any person who is the resident of India.
3. Benefit can be in
- cash or
- kind or
- partly in kind and partly in cash.
4. Since the threshold of Rs 20,000/- is with respect to the FY, calculation of value or aggregate of value of the benefit or perquisite triggering deduction shall be counted from 1st April, 2022.
> if the value or aggregate value of the benefit or perquisite provided or likely to be provided to a resident exceeds Rs 20,000/- during the FY 2022-23 (including the period up to 30th June, 2022), the provision of section 194R shall apply on any benefit or perquisite provided on or after 1st July 2022.
> However, the benefit or perquisite which has been provided on or before 30th June 2022, would not be subjected to tax deduction under section 194R of the Act.
5. If benefit or perquisite provided in kind or partly in kind and partly in cash and part of which is paid in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax has been paid in respect of the benefit or perquisite
> The tax deductor may rely on
- a declaration confirming that the tax required to be deducted has been deposited.
- along with a copy of the advance tax payment challan provided by the recipient
> This would then required to be reported in TDS return along with challan number
> This year Form 26Q has included provisions for reporting such transactions.
6. The valuation would be based on fair market value of the benefits or perquisite except in following cases
> If provider purchased before providing it to recipient then purchase price of such item
> If provider manufactured such item then price it charges to its customers.
It is further clarified that GST will not be included for the purposes of valuation of benefit/ perquisite for TDS under section 194R of the Act.
7. It is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.
> There could be another situation, where a seller is selling its items from its stock in trade to a buyer. The seller offers two items free with purchase of 10 items. In substance, the seller is actually selling 12 items at a price of 10 items. Let us assume that the price of each item is Rs 12. In this case, the selling price for the seller would be Rs 120 for 12 items. For buyer, he has purchased 12 items at a price of 10. Just like seller, the purchase price for the buyer is Rs 120 for 12 items and he is expected to record so in his books. In such a situation, again there could be difficulty in applying section 194R provision. Hence, to remove difficulty it is clarified that on the above facts no tax is required to be deducted under section 194R of the Act. It is clarified that situation is different when free samples are given and the above relaxation would not apply to a situation of free samples.
> Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale. To illustrate, the following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act (the list is not exhaustive):
- 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.
- When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets
- When a person provides free ticket for an event
- When a person gives medicine samples free to medical practitioners.
> The above examples are only illustrative. The relaxation provided from non-deduction of tax for sales discount and rebate is only on those items and should not be extended to others.
> It is further clarified that these benefits/perquisites may be used by owner/director/ employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession. However, the tax 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.
> The provision of section 194R of the Act shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.
8. In case of 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 provided by the second person to the first person in the course of business/profession.
> Let us assume that a consultant is rendering service to a person “X” for which he is receiving consultancy fee. In the course of rendering that service, he has to travel to different city from the place where is regularly carrying on business or profession. For this purpose, he pays for boarding and lodging expense incurred exclusively for the purposes of rendering the service to “X”. Ordinarily, the expenditure incurred by the consultant is part of his business expenditure which is deductible from the fee that he receives from company “X”. In such a case, the fee received by the consultant is his income and the expenditure incurred on travel is his expenditure deductible from such income in computing his total income. Now if this travel expenditure is met by the company “X”, it is benefit or perquisite provided by “X” to the consultant.
> However, sometimes the invoice is obtained in the name of “X” and accordingly, if paid by the consultant, is reimbursed by “X”. In this case, since the expense paid by the consultant (for which reimbursement is made) is incurred wholly and exclusively for the purposes of rendering services to “X” and the invoice is in the name of “X”, then the reimbursement made by “X” being the service recipient will not be considered as benefit/perquisite for the purposes of section 194R of the Act.
> If the invoice is not in the name of “X” and the payment is made by “X”
- directly or reimbursed,
- it is the benefit/ perquisite
provided by “X” to the consultant for which deduction is required to be made under section 194R of the Act.
9. In case of dealer conference to educate the dealers about the products of the company
> not be considered as benefit/perquisite if the conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
(i) new product being launched
(ii) discussion as to how the product is better than others
(iii) obtaining orders from dealers/customers
(iv) teaching sales techniques to dealers/customers
(v) addressing queries of the dealers/customers
(vi) reconciliation of accounts with dealers/customers
> However, such conference must not be in the nature of incentives/benefits to selected dealers/customers who have achieved particular targets.
> Further, in the following cases the expenditure would be considered as benefit or perquisite:-
i. Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference.
ii. Expenditure incurred for family members accompanying the person attending dealer business conference
iii. Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
10. In case 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 and the benefit or perquisite being a product like car, mobile, outfit, cosmetics etc and
> product is returned to the manufacturing company after using for the purpose of rendering service :- Section 194R Not Applicable
> If the product is retained then it will be in the nature of benefit/perquisite :Section 194R Applicable
Note:- The Apex body CBDT has come up with a Clarificatory Circular No. 12 of 2022-Income Tax, dated 16.6.2022, containing clarificatory guidelines . For detail, please refer to the link given below.
https://www.incometaxindia.gov.in/communications/circular/circular-no-12-2022.pdf
Disclaimer: The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. No one should act on such information without appropriate professional advice after thorough examination of the particular situation. We neither accept nor assume any responsibility or liability to any reader of this newsletter in respect of the information contained in it or for any decisions he may take or decide not to or fail to take. No part of this document should be distributed or copied by anyone without our express written permission.
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