SECTION-194R-DEDUCTION OF TAX ON BENEFIT OR PERQUISITE IN RESPECT OF BUSINESS OR PROFESSION

Section 194R was inserted by the Act No. 06 of 2022, w.e.f. 1-7-2022 which says to deduct TDS on purchase of goods subject to certain conditions fulfillment.

Let’s see in detail how the whole provisions of this section works, its applicability & other burning issues.

APPLICABILITY

  • ANY PERSON, BEING A RESIDENT OR NON-RESIDENT.
  • RESPONSIBLE FOR PROVIDING TO A RESIDENT.
  • ANY BENEFIT OR PERQUISITE
  • CONVERTIBLE IN MONEY OR NOT
  • ARISING FROM THE BUSINESS OR EXERCISE OF PROFESSION BY THE RESIDENT
  • SHALL
  • BEFORE PROVIDING SUCH BENEFIT OR PERQUISITE
  • NEEDS TO DEDUCT TAX @10%
  • OF THE VALUE OR AGGREGATE OF THE VALUE OF SUCH BENEFIT OR PERQUISITE.

PROVISO’S

  • BENEFIT IS WHOLLY IN KIND OR PARTLY IN CASH & PARTLY IN KIND
  • CASH PART IS NOT SUFFICIENT TO MEET THE LIABILITY OF TDS THEN
  • THE PERSON RESPONSIBLE FOR PROVIDING THE BENEFIT SHALL ENSURE THAT TDS HAS BEEN PAID

PROVISIONS OF THIS SECTION WILL NOT APPLY IF

  • THE VALUE OR AGGREGATE OF THE VALUE OF BENEFIT OR PERQUISITE DURING THE FINANCIAL YEAR DOES NOT EXCEED TWENTY THOUSAND RUPEES.
  • PERSON (PROVIDING THE BENEFIT) IS INDIVIDUAL OR HUF WHOSE TOTAL SALES OR TURNOVER OR GROSS RECEIPTS DOES NOT EXCEEDS—-
  • ———-ONE CRORE RUPEES—-IN CASE OF BUSINESS
  • ———-FIFTY LAKH RUPEES—-IN CASE OF PROFESSION
  • DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH BENEFIT IS PROVIDED

GUIDELINES ISSUED BY CBDT VIDE CIRCULAR NUMBER-12 OF 2022 DATED 16.06.2022

THE GUIDELINES ARE ISSUED BY CBDT IN THE FORM OF A FAQ’S. LET’S UNDERSTAND EACH FAQ IN DETAIL.

♦ IS IT NECESSARY THAT THE PERSON PROVIDING BENEFIT OR PERQUISITE NEEDS TO CHECK IF THE AMOUNT IS TAXABLE UNDER CLAUSE (IV) OF SECTION 28 OF THE ACT, BEFORE DEDUCTING TAX UNDER SECTION 194R OF THE ACT?

Answer-NO

-THE DEDUCTOR IS NOT REQUIRED TO CHECK WHETHER THE BENEFIT IS TAXABLE UNDER SECTION-28 CLAUSE IV IN THE HANDS OF PERCIPIENT.

-IT IS AN OBLIGATION OF THE PERSON GIVING BENEFIT OR PERQUISITE.

– NOT REQUIRED TO FURTHER CHECK, WHETHER IT IS FURTHER TAXABLE THE HANDS OF RECIPIENT.

♣ IS IT NECESSARY THAT THE BENEFIT MUST BE IN KIND?

Answer-No, the benefit can be in cash or in kind or partly in cash & partly in kind.

♣ WHEN THE BENEFIT IS IN THE FORM OF CAPITAL ASSET, IT IS REQUIRED TO DEDUCT TDS ?

Answer- Yes, the benefit may be in the form of Capital Asset like car, land etc. & it is not the duty of deductor to check whether it is taxable in the hands of recipient. Accordingly, TDS needs to be deducted where any benefit or perquisite is provided.

♣ WHETHER SALES DISCOUNT, CASH DISCOUNT & REBATES ARE BENEFIT OR PERQUISITE ?

Answer-Yes, but there are some exceptions to it as there may be some circumstances where it may be difficult for the seller. Meaning thereby TDS need not to be deducted on Sales discount, Cash discount & rebate.

Few examples of other benefits on which TDS needs to be deducted:-

  • Incentive in the form of cash or kind.
  • Person sponsors a trip for achieving some target.
  • Person providing free ticket for an event.
  • Free medicine samples to medical practitioners.

Point to note- The benefit may be used by the recipient/ relative/employee of recipient; however it will be taxable only for the recipient since the benefit is provided to the recipient.

  • The provisions of Section-194R will not apply if benefit is being provided to govt. entity not carrying on business or profession.

VALUATION OF BENEFIT/PERQUISITE

Answer- Valuation would be on the basis of Fair Market Value except

Case-1- The benefit provider has purchased the benefit before providing it to the recipient. In this case, Purchase Price will be the value of benefit/perquisite.

Case-2- The benefit provider manufactured the benefit. In this case, Price that it charged from customers will be the value of benefit/perquisite.

Note- Valuation will be done excluding GST.

♣ SOME PRODUCT GIVEN BY MANUFACTURERS TO SOCIAL MEDIA INFLUENCERS FOR USE & MAKE AUDIO/VIDEO ABOUT THAT PRODUCT IN SOCIAL MEDIA. IS THE PRODUCT GIVEN A BENEFIT/PERQUISITE?

Answer- In case, the benefit provided is a product like car, mobile, gift etc.

  • If the product returned to the manufacturer after using by the social media influencer, then it will not be benefit/perquisite.
  • If the product retained by the social media influencer, then it will be benefit/perquisite.

♣ WHETHER REIMBURSEMENT OF OUT OF POCKET EXPENSES INCURRED BY SERVICE PROVIDER IN THE COURSE OF RENDERING SERVICE IS BENEFIT/PERQUISITE?

Answer- 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.

Example- A consultant-Mr. X raises his invoice to company-B for his service being provided. In addition to the services, there are some out of pocket expenses i.e. Traveling expenses.

-Now if travel expenses are met by company-B, then these are in the nature of benefit/perquisite being provided to Mr. X.

-If invoice is obtained in the name of company-B in respect of the expenses, then the reimbursement made by company-B will not be treated as benefit/perquisite.

♣ WHETHER THE EXPENDITURE ON DEALER CONFERENCE TO EDUCATE THE DEALERS ABOUT THE PRODUCT OF THE COMPANY IS A BENEFIT/PERQUISITE?

Answer- No, where the business conference is held with the prime objective to educate dealers/customers about the following:-

  • New product
  • Discussion on how the product is better from others
  • Obtaining orders from dealers
  • Teaching sales technique
  • Addressing queries of customers
  • Reconciliation of accounts.

Note- Such conference must not be in the nature of selecting dealers who have achieved particular targets. 

Section-194R-Deduction of Tax on Benefit or Perquisite

Cases where expenditure on conference will be treated as benefit/perquisite:-

  • Expense attributable to leisure trip.
  • Expenses incurred for family members of the dealer.
  • Expenses on stay of dealers for days which are prior stay or over stay days.

♣ SECTION 194R PROVIDES THAT IF THE BENEFIT/PERQUISITE IS IN KIND OR PARTLY IN KIND (AND CASH IS NOT SUFFICIENT TO MEET TDS) THEN THE PERSON RESPONSIBLE FOR PROVIDING SUCH BENEFIT OR PERQUISITE IS REQUIRED TO ENSURE THAT TAX REQUIRED TO BE DEDUCTED HAS BEEN PAID IN RESPECT OF THE BENEFIT OR PERQUISITE, BEFORE RELEASING THE BENEFIT OR PERQUISITE. HOW CAN SUCH PERSON BE SATISFIED THAT TAX HAS BEEN DEPOSITED?

Answer- It is required to be ensured that tax has been paid by the recipient in the form of Advance tax.

  • Obtain declaration along with the copy of Advance tax challan from recipient.
  • Mention these particulars in TDS Return in Form 26Q with challan number.

Note- Alternatively, the benefit provider may deduct the tax & deposit it to the govt. the tax paid by him is also a benefit under Section-194R.

♣ SECTION-194R APPLICABLE FROM 01.07.2022 AND IF THE AGGREGATE OF BENEFIT/PERQUISITE PROVIDED DURING THE FINANCIAL YEAR DOES NOT EXCEED TWENTY THOUSAND RUPEES, THEN THIS SECTION IS NOT APPLICABLE. HOW TO COMPUTE THE LIMIT OF TWENTY THOUSAND FOR THIS FINANCIAL YEAR 2022-23 ?

Answer-The aggregate of the value (for applicability of this section) shall be computed from 01.04.2022.

  • If aggregate of the value exceeds or likely to exceed Rs 20,000/- during the F.Y. 2022-23, then section-194R will be applicable.
  • On any benefit/perquisite provided on or after 01.07.2022.
  • Benefit/perquisite provided on or before 30.06.2022, then this section will not be applicable.

Examples-

S.NO. Benefit Provided upto 30.06.2022 Benefit Provided from 01.07.2022 to 31.03.2023 Section 194R applicability, amount
1. Rs 5000/- Rs 19000/- Yes, since threshold exceeds Rs 20000/- (5000+19000)

TDS on Rs 19000/-

2. Rs 22000/- Rs 25000/- Yes, since threshold exceeds Rs 20000/- (19000+25000)

TDS on Rs 25000/-

3. Rs 20000/- Nil No, since threshold does not exceeds Rs 20000/-
4. Rs 15500 Rs 4501/- Yes, since threshold exceeds Rs 20000/- (15500+4501)

TDS on Rs 4501/-

 Source- www.incometaxindia.gov.in & other relevant notifications/circulars.

Author Bio

Qualification: CA in Practice
Company: N/A
Location: Delhi, Delhi, India
Member Since: 17 May 2021 | Total Posts: 3
CA IN PRACTICE IN DELHI, HANDLING MATTERS OF INCOME TAX, TDS, GST & OTHER ADVISORY MATTERS. View Full Profile

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