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Section 194R- Crux of Deduction of Tax On Benefit or Perquisite In Respect of Business or Profession

MY OPINIONS ON 194R- DEDUCTION OF TAX ON BENEFIT OR PERQUISITE IN RESPECT OF BUSINESS OR PROFESSION:

1. Applicability: Any person includes all types of Assessee.

2. Rate of Tax: 10% of the Value or aggregate of value of such benefits or perquisites.

3. Non-Applicability:

  • If value of such benefits or perquisites is less than 20,000/- during the financial year.
  • An individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business.
  • Fifty lakh rupees in case of profession, during the financial year.

4. Liability to Deduct: The person responsible for providing such benefit or perquisite shall deduct tax as applicable.

5. When to Deduct: Before releasing the benefit or perquisite, he needs to ensure that required tax has been deducted and paid by person receiving the such benefit or perquisite.

Section 194R: TDS @ 10% on Benefits or Perquisites, arising out of Business or Profession

In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable w.e.f. 1.7.2022.

This new section 194R requires deduction of tax at source @ 10%, by any person (resident or non-resident), providing any benefit or perquisite, whether convertible into money or not, exceeding Rs. 20,000 in value in a year, to a resident, arising from the carrying out of any business or exercise of any profession by such resident recipient.

The provisions of this section shall not apply if the benefit or perquisite provider is 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.

My analysis of following analysis of few issues listed below which have been addressed in the Income Tax Department CBDT Circular No. 12/2022, dated 16.06.2022.

Issue 1) Dealer/Business Conference where it is held with the prime object to educate  dealers/customers about any of the  following or similar aspects:

1. new product being launched

2. discussion as to how the product is better than others

3. obtaining orders from

dealers/customers

1. teaching sales techniques to dealers/customers

2. addressing queries of the dealers/customers

3. reconciliation of accounts with dealers/customers.

Solution: Not Applicable, as per Clarification given in Ques. No. 8 of CBDT Circular No. 12/2022, dated 16.06.2022.

Issue 2) Dealer/Business Conference where it is in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.

Solution: 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.

Issue 3)

a) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference.

b) Expenditure incurred for family members accompanying the person attending dealer/business conference.

c) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

Solution: 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.

Issue 4) Trade Discounts, Cash Discounts, Rebates on MRP/Listed Price of Products or Services

Solution: Not Applicable, as per Clarification given in Ques. No. 4 of CBDT Circular No. 12/2022, dated 16.06.2022.

Issue 5) Additional Quantities provided Free of Cost with the Basic Price (1 plus 1 or similar schemes)

Solution: Not Applicable, as per Clarification given in Ques. No. 4 of CBDT Circular No. 12/2022, dated 16.06.2022.

Issue 6) Incentives in Cash or Kind given to Dealers, Distributors, Channel Partners based on Target Completion

Solution: 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 or gifts exceeds Rs. 20,000/- in a year, per recipient.

Issue 7) Loyalty Rewards in cash (cash back)/prepaid vouchers/ kind/ in the form of discount on future purchases

Solution: 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 or gifts exceeds Rs. 20,000/- in a year, per recipient.

Issue 8) Gifts based on quantities/ values/ timing of purchase (e.g. Early bird schemes)

Solution: 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 or gifts exceeds Rs. 20,000/- in a year, per recipient

Issue 9) Incentives and Gifts such as Bags, Kits, Gold/Silver Coins, Watches, Mobile Phones etc. for Target Completion

Solution: 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 or gifts exceeds Rs. 20,000/- in a year, per recipient.

Crux of TDS under Section 194R of Income Tax Act, 1961

Issue 10) Incentives such as Free/Company Sponsored Entertainment Tours for Target Completion

Solution: 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 Tours exceeds Rs. 20,000/- in a year, per recipient.

Issue 11) Extended Credit period (offered as a special case)

Solution: Subject to Deduction of TDS @ 10% on Fair Market Value/Opportunity Cost of Benchmark Interest of Such Extended Period, if the aggregate value of such benefit, exceeds Rs. 20,000/- in a year, per recipient.

Issue 12) Insurance coverage for dealer, his employees/ families

Solution: Subject to Deduction of TDS @ 10% on Actual Cost Basis or on Fair Market Value of such Insurance Coverage, if the aggregate value of such benefit, exceeds Rs. 20,000/- in a year, per recipient.

Issue 13) Customary gifts to business/ professional associates on festive occasions, celebrating successful completion of projects, etc.

Solution: 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 or gifts exceeds Rs. 20,000/- in a year, per recipient.

Issue 14) If the Social Media Influencer/Brand Ambassador/Artist retains with it the Benefit or Perquisite or Product like Car, Mobile, Outfit, Cosmetics etc, for which he is exercising his social media influence, and the said Benefits or Perks are not returned to Company.

Solution: TDS @ 10% u/s 194R, on Actual Cost Basis, or on Fair Market Value of such Benefits or Perks is required to deducted by the Company hiring such Brand Ambassador or Artist, as clarified in Ques. No. 6 of CBDT Circular No. 12/2022, dated 16.06.2022.

Reference: Bare Act Section of the Income Tax Act,1961

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.]

Author Bio

I am Corporate Employee having good exposure in MIS, Finance and Direct Tax. Also I am working as Freelancer Tax Consultant. If you need any Consultancy related to Taxation then Reach out me : Lokeshprajapat93@gmail.com Mobile : +91-7208043204 View Full Profile

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