Analysis of Section 194R of Income Tax Act, 1961 which relates to TDS on benefits or perquisite and is applicable with effect from 01.07.2022.
APPLICABILITY:
To all assesse (other than Individual & HUF)
And
Individual & HUF
(having Business Aggregate Turnover above Rs. 1,00,00,000
or
in case of Profession Professional receipt above Rs 50,00,000
in previous year 2021-22 assessment year 2022-23.)
Union Budget 2022, a new TDS section 194R, has been proposed in the Finance Bill 2022, w.e.f. 01.07.2022.
This new section 194R requires deduction of tax at source @ 10%, by 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 and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income tax Act.
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.
Sec 28 : The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—
(iv): the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.
Also, such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession.
The benefit or perquisite referred to the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, TDS is covered by section 192 is already there.
Purpose for Introducing of Sec 194R:
It was observed by department that many companies claimed expenses for business promotions by offering various gifts/ perks/ benefits to its dealers (on fulfillments of conditions of under agreement or as per prevalent norms/ tradition practice followed by over the years by business entity) under section 37 of Income Tax Act 1961, however majority of dealer did not declared the said gifts/ perks/ benefits under business income as required by sec 28 (iv) of Income Tax Act 1961. So to bring such gifts/ perks/ benefits received due to business connections by resident dealers TDS U/s 194R is introduced to track the undeclared income.
Summary of Sec 194R:
| Sec No. | Nature of Payment | Monetary Limit for Deduction | Payer
(Person making Payment) |
Payee (Receiver) | Rate |
| 194 R | Benefit or perquisite provided in cash or Kind.
(gifts, perks or benefits) |
Above Rs. 20,000 | Any person (Other Than Individual/HUF)
And Individual/ HUF having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000. (ie. Resident or Non Resident) |
Resident Person
|
10% |
Special Points:
1. Applicable from 01/07/2022. (Refer Case 1 & 2)
2. Such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession.(Refer Case 3 & 5)
3. For calculating Aggregate limit of Rs. 20,000 financial year is to be considered as a whole and not period after 01/07/2022.(Refer Case 4)
4. Such gifts, perks or benefits provided are not in relation to business of resident person. (Eg. honorarium given to resident as guest of honor for function or event) (Refer Case 6)
5. The monetary limit of Rs. 20000 includes both cash and non-cash gifts, perks or benefits.
Few Case Studies for Understanding the provision under section 194R applicable from 01/07/2022 onwards:
Case 1: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust) |
| Amount of gift/ perks/ benefits provided to dealer | Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 50,000 + GST on 31/05/2022 on achieving target for FY 2021-22. |
| Sec 194R Applicability | Not Applicable |
| Reason | As gift/ perks/ benefits ie. Holiday Package is provided before 01/07/2022. So provisions of Sec 194 R is not applicable in given case. |
| TDS on Amount | NA |
| TDS U/S | NA |
| Date of Deduction | NA |
| TDS RATE | NA |
| TDS Amount | NA |
Refer special point No. 1 in summary of Sec 194R
Case 2: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust) |
| Amount of gift/ perks/ benefits provided to dealer | Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 50,000 + GST on 31/07/2022 on achieving target for FY 2021-22. |
| Sec 194R Applicability | Applicable |
| Reason | As gift/ perks/ benefits ie. Holiday Package is provided after 01/07/2022.
So provisions of Sec 194R is applicable in given case. |
| TDS on Amount | Rs. 50000 |
| TDS U/S | 194R |
| Date of Deduction | 31/07/2022 |
| TDS RATE | 10% |
| TDS Amount | Rs. 5000 (Challan to be deposited by 07/08/2022) |
Refer special point No. 1 in summary of Sec 194R
Case 3: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident Employee (Individual) |
| Amount of gift/ perks/ benefits provided to dealer | Mr. Y (Resident Employee) was provided with holiday package amounting to Rs. 50,000 + GST on 31/07/2022 on achieving target for FY 2021-22. |
| Sec 194R Applicability | Not Applicable |
| Reason | As gift/ perks/ benefits i.e. Holiday Package is provided to Resident employee will be added in salary and TDS will be deducted U/s 192.
So provisions of Sec 194R is Not applicable in given case. |
| TDS on Amount | Rs. 50,000 will be treated as salary U/s 17 of Income Tax Act 1961. |
| TDS U/S | 192 |
| Date of Deduction | On 07th of every month |
| TDS RATE | Average Rate as per Tax |
| TDS Amount | As per Slab rate |
Refer special point No. 2 in summary of Sec 194R
Case 4: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust) |
| Amount of gift/ perks/ benefits provided to dealer | Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 10,000 + GST on 31/05/2022 on achieving target for FY 2021-22 and Gold Coin Worth Rs. 15000 on 31/07/2022 |
| Sec 194R Applicability | Applicable |
| Reason | As gift/ perks/ benefits ie. Holiday Package & Gold Coin is provided after 01/07/2022 exceeds Aggregate Limit of Rs. 20,000. (Rs. 25,000 i.e. Rs.10,000 before 01/07/2022 and 15,000 after 01/07/2022)
So provisions of Sec 194R is applicable in given case. |
| TDS on Amount | Rs. 25,000 |
| TDS U/S | 194R |
| Date of Deduction | 31/07/2022 |
| TDS RATE | 10% |
| TDS Amount | Rs. 2,500 (Challan to be deposited by 07/08/2022) |
Refer special point No. 3 in summary of Sec 194R
Case 5: : M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust) |
| Amount of gift/ perks/ benefits provided to dealer | Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 10,000 + GST on 31/05/2022 on achieving target for FY 2021-22 and Gold Coin Worth Rs. 15,000 on 31/07/2022 on his sons marriage. |
| Sec 194R Applicability | Not Applicable |
| Reason | As gift/ perks/ benefits ie. Holiday Package is provided after 01/07/2022 does not exceeds Aggregate Limit of Rs. 20,000.
(Rs. 15,000 is given to son of Mr. Y at time of Marriage which is not in relation to Business as U/s 28(iv), hence same shall not be included for calculation of aggregate value.) So provisions of Sec 194R is not applicable in given case. |
| TDS on Amount | NA |
| TDS U/S | NA |
| Date of Deduction | NA |
| TDS RATE | NA |
| TDS Amount | NA |
Refer special point No. 2 in summary of Sec 194R
Case 6: : M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Trust)/ ABC (Co-operative society)
Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
| Matter | Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers |
| Given to | Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust) |
| Amount of gift/ perks/ benefits provided to dealer | M/s XYZ Limited (Resident Dealer) was provided with Gold Coin Worth Rs. 15,000 on 31/07/2022 on achieving target for FY 2021-22 and
Impress with Mr Y (employee of M/s XYZ) performance it provided Silver Coins amounting to Rs. 10,000 + GST to Mr Y on 31/07/2022 as gift. |
| Sec 194R Applicability | Not Applicable |
| Reason | As gift/ perks/ benefits ie. Coins is provided after 01/07/2022 does not exceeds Aggregate Limit of Rs. 20,000.
(Rs.10,000 Silver Coins is given to Mr. Y is not in relation to Business as U/s 28(iv) as he is not the authorized dealer but employee of M/s XYZ Limited, moreover Silver Coins provided to Mr. Y in his personal capacity and not capacity as employee of M/s XYZ Limited. Hence same shall not be included for calculation of aggregate value.) So provisions of Sec 194R is not applicable in given case. |
| TDS on Amount | NA |
| TDS U/S | NA |
| Date of Deduction | NA |
| TDS RATE | NA |
| TDS Amount | NA |
Refer special point No. 4 in summary of Sec 194R
Source:All about New TDS Section 194R and Section 194S
Author Bio
Whether interest free loan taken by subsidiary company from its parent company in the course of business-operations, will it be treated as benefits/perquisites for the purpose of TDS under section 194R?
Sir, a Section 8 Company registered u/s 12AA/12AB of Income Tax Act providing Incubation to Startups for which funding received from Govt. of India or other agencies and the Company makes payments as grants to startups for setting up their business or supporting their business and in that case whether provision of Section 194R will be attracted on such payment of Grants by the Company to Startups?
Dear Sir,
In our company, we give trade and additional scheme on the purchase of certain qty of our products and we give our products in lieu of trade/additional schemes. But we do not charge TDS to the distributor as this free qty goes to distributor on bill (under zero value). But what will will happen if we give certain target to our distributor say for 3 months to achieve, and give our own products (on invoice) on achievement of a particular slab of qty / amount. In this case, will the distributor be liable for TDS under 194R ?
Please help to understand.
Thanks
Dear Sir,
Ours is company give free samples to customers on purchase of specific quantity. Example on purchase of 100 nos , 4 numbers free. Whether we need to deduct TDS under 194 R for value of free samples to customer
Sir it depends on Accounting Treatment you are giving in your books of accounts.
Case 1: Said goods are given free as part of scheme/contract/past performance hence no reversal of ITC under GST and forms part of sales via nominal amount of say Re. 1 to maintain stock register, in such case I m of the firm opinion that Sec 194R is not applicable.
Case 2: Free samples given are treated as sales promotion expenses or business promotion expenses in books of accounts in such case 194R will get attracted.
Very helpful and explained in very easy manner.
Thanks for that.
well explained
Dear Sir,
Thanks a lot for the education on this new provision of tds. However, Could you please educate us in respect of ‘deductee’ and ‘deductor’ concepts with an example under this new provision?
Thanks & Regards,
Abdul Salam
Dear Reader,
As per FAQ released by IT Department via Circular No. 12 of 2022 on 16/06/2022 refer Q 10.
According to this Case 4 answer given by me Should be rectified in following Columns
TDS on amount = 15000
TDS amount = 1500(15000*10%).
As clarification was issued on 16th June 2022 after publishing of article on 01st June 2022.
Moreover i give credit for my work to Articles Published before 01st June 2022 relating 194R on Taxguru, Taxmann and by other professional members, I have tried to simplified the same using Case Study for better understanding.
The half portion of your article has been copied verbatim from my earlier published article “All You Wish to Know About TDS u/s 194R & 194S with TaxGuru. Kindly try to be Original.
Dear sir,
I have just given insight to of Sec 194R it might be that we have common cases or write up, but it not copied from your post. However in might have gone through your article while drafting the same, in that case i m thankful to senior faculties like you for helping young professional like us.
Moreover you can see this lady has totally copied my presentation word to word in her youtube video link https://youtu.be/55ohuWPpMZs. i have not reported or nor posted any comments for the same on youtube as this was for better clarity of Sec 194R.
Once again thanking you for your inputs and analysis of sec 194R which was useful to professional like me.