Guide to new TDS Section 194R of the Income Tax Act

Basically, with a view to broaden and deepen the tax base, a new TDS section 194R was inserted vide the Finance Act, 2022. Section 194R covers provisions relating to the deduction of tax on benefit or perquisite in respect of business or profession. Notably, section 194R of the Income Tax Act is made effective from 1^st July 2022.

The present article briefly highlights all the provisions relating to section 194R of the Income Tax Act along with relevant Frequently Asked Questions (FAQs).

Understanding the provisions of section 194R of the Income Tax Act –

The TDS provisions of section 194R are summarized hereunder –

√ Applicability of provisions of section 194R –

• • Any person responsible for providing any benefit or perquisite (cash or kind) to a resident;
  • Such benefit or perquisite is arising from business or profession;
  • In such a case, TDS is deductible under section 194R.

√ Time of deduction under section 194R –

TDS u/s 194R is to be deducted before providing the benefit or perquisite. Importantly, when the benefit or perquisite is either wholly in kind or partly in cash and partly in kind. Then, in such case, the deductor, before releasing the benefit or perquisite, needs to ensure that the TDS in respect of such benefit or perquisite is paid.

√ TDS Rate –

TDS under section 194R is deductible at the rate of 10%.

√ Effective date –

TDS provisions of section 194R are made effective from 1^st July 2022.

√ Non-applicability of provisions of section 194R –

• • Value/ aggregate value of the benefit or perquisite doesn’t exceed INR 20,000 during the Financial Year; or
  • Individual/ HUF whose total sales/ gross receipt/ turnover doesn’t exceed INR 1 Crores in case of business or INR 50 Lakhs in case of the profession during the Financial Year.

Short summary of the provisions of section 194R is tabulated hereunder –

Particulars	Details
Deductor	Any person paying benefit/ perquisite (arising from business or profession) to resident
Deductee	Resident person
Time of TDS deduction	Before providing benefit/ perquisite to the deductee
Rate of TDS deduction	10%
Exemption	In case benefit/ perquisite has no connection with business or profession; or Value/ aggregate value of benefit/ perquisite is less than INR 20,000 in a Financial Year; or Deductor, being individual or HUF, having gross receipts or total sales or turnover less than INR 1 Crores (business) or INR 50 Lakhs (profession).

Various clarifications with regard to the applicability of section 194R –

Central Board of Direct Taxes (CBDT) has come up with two circulars, namely circular no. 12 of 2022 dated 16^th June 2022 circular no. 18 of 2022 dated 13^th September 2022, clarifying various issues. The gist of both the circulars is briefed hereunder –

1. Positions clarified vide circular no. 12 of 2022 dated 16^th June 2022 –

• • While deducting TDS u/s 194R, the deductor is not required to check whether the respective benefit/ perquisite is taxable in the hands of the deductee under section 28(iv) of the Income Tax Act;
  • TDS u/s 194R is deductible irrespective of the nature of benefit or perquisite (i.e. capital or revenue);
  • TDS u/s 194R is deductible whether benefit or perquisite is given in wholly in cash or wholly in kind or partly in cash and partly in kind;
  • TDS u/s 194R is not required to be deducted in case of cash discounts, sales discounts and rebates allowed to customers;
  • TDS u/s 194R doesn’t apply if the benefit or perquisite is provided to a Government entity (For Eg. a Government hospital which is not carrying on business or profession);
  • Valuation of benefit or perquisite should be done in the following manner –

Particulars	Valuation of benefit or perquisite
Deductor has purchased the benefit or perquisite before providing it to the deductee	Purchase price
Deductor manufactures such items which are given as benefit or perquisite to the deductee	Actual price charged to normal customers

• • Treatment of product given to social media influencer –

Now a days, many manufacturing companies provide their products to the social media influencer to create video indirectly marketing the same.

Treatment of such products so given to the influencer as benefit or perquisite is explained hereunder –

Particulars	Treatment
Products like car, outfit, cosmetics, mobile etc. given to the influencer are returned back to the company	Not to be treated as benefit or perquisite and hence TDS u/s 194R is not deductible.
Products like car, outfit, cosmetics, mobile etc. given to the influencer are retained by the influencer and not returned back to the company	It is to be treated as a benefit or perquisite and hence provisions of section 194R gets applicable.

• Treatment of out of pocket expenses –

Particulars	Treatment
Reimbursement of out of pocket expenses wherein supporting document is in the name of the payee	Not to be treated as benefit or perquisite and hence TDS u/s 194R is not deductible.
Reimbursement of out of pocket expenses wherein supporting document is not in the name of the payee	It is to be treated as a benefit or perquisite and hence provisions of section 194R gets applicable.

• Treatment of dealer/ business conference –

Particulars	Treatment
Dealer/ business conference held with the prime objective of educating dealers / customers about specified product/ order etc.	Not to be treated as benefit or perquisite and hence TDS u/s 194R is not deductible.
Expense relating to leisure trip/ component even if it is related to dealer/ business conference	It is to be treated as a benefit or perquisite and hence provisions of section 194R gets applicable.
Expense relating to family members of the person attending the dealer/ business conference
Expense relating to prior stay/ overstay beyond the date of dealer/ business conference

2. Positions clarified vide circular no. 18 of 2022 dated 13^th September 2022 –

• TDS u/s 194R is not deductible in case of one-time loan settlement with the borrowers/ waiver of loan granted on reaching settlement with the borrowers by Public Financial Institution/ Scheduled Bank/ Co-operative Bank/ etc.
• In the case of treatment of the dealer/ business conference, it is clarified that a day immediately prior to the start date of the dealer/ business conference and the day immediately following the end date of the dealer/ business will not be considered as an overstay.
• With regard to the benefit/ perquisite provided in a group activity, it is clarified that if such benefit/ perquisite is difficult to allocate to each participant. Then, the provider may at his option abstain from claiming such expenses as deductible expenditures for calculating his total income. If the provider opts not to claim the benefit/ perquisite expenditure, then, he is not liable to deduct TDS u/s 194R.
• TDS provisions u/s 194R are not applicable on benefit/ perquisite provided by –
  • An organization in the scope of the United Nations (Privileges and Immunity Act), 1947;
  • An international organization whose income is exempted under a specific Act of the Parliament;
  • An embassy;
  • A High Commission, commission, legation, trade representation and consulate of the foreign state.

Frequently Asked Questions (FAQs) –

Frequently Asked Questions with regard to provisions of section 194R of the Income Tax Act are summarized hereunder –

1. What is TDS section 194R?

TDS section 194R mandates the person responsible for paying benefit/ perquisite, arising from business or profession, to deduct tax at source.

2. What is 194 R income tax?

194R is a TDS section as per which the person paying benefit/ perquisite to a resident is liable to deduct TDS @10%.

3. Is 194R applicable to employees?

194R will not be applicable to benefit/ perquisite given to employees if TDS on the same is deducted under section 192 of the Income Tax Act.

4. Is 194R applicable to companies?

Yes, TDS provisions prescribed under section 194R will be applicable to the company in case the company is engaged in providing benefit/ perquisite to a resident above the prescribed limit.

5. What is TDS exemption limit?

The TDS exemption limit above which tax is deductible under section 194R is INR 20,000.

6. Who is eligible for TDS exemption?

TDS exemption under section 194R is available under the following two circumstances –

• Value or aggregate value of benefit/ perquisite paid to a resident during the Financial Year is less than INR 20,000; or
• Individual or HUF is having turnover/ total sales/ gross receipts before INR 1 Crores (business) or INR 50 Lakhs (profession).

7. Who is applicable for 194R?

194R is applicable to any person (whether resident or non-resident) who is providing benefit/ perquisite to a resident person.

8. From when is 194R applicable?

TDS provisions under section 194R are applicable with effect from 1^st July 2022.