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.
PROVISIONS OF THIS SECTION WILL NOT APPLY IF
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?
-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:-
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.
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.
♣ 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:-
Note- Such conference must not be in the nature of selecting dealers who have achieved particular targets.
Cases where expenditure on conference will be treated as benefit/perquisite:-
♣ 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.
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.
|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.