APPLICABILITY:
To all assesse (other than Individual & HUF)
And
Individual & HUF having Turnover is above Rs. 1,00,00,000 or Professional receipt is 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 benefit or perquisite referred to in this new section 194R is not the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, as for that perquisite u/s 17(2), another TDS section 192 is already there.
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.
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. |
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)
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(Tust)/ 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(Tust)/ 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) |
| 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(Tust)/ 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. 50000 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(Tust)/ 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) |
| 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. 20000. (Rs. 25000 i.e. Rs.10000 before 01/07/2022 and 15000 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(Tust)/ 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) |
| 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 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. 20000.
(Rs. 15000 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(Tust)/ 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) |
| Amount of gift/ perks/ benefits provided to dealer | M/s XYZ Limited (Resident Dealer) was provided with Gold Coin Worth Rs. 15000 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
Author Bio
Running a small Enterprise with about 50 employees on the roll, turn over more than Rs 1 crore. Salary, EPF & GST for the employees is being paid by the Principle employer. However, when the insurance of the employees was made and claimed from principle employer, TDS was deducted under section 194R. Is the deduction valid if so how? Pl explain
if the company provides here employees petrol and driver salary can it be covered in 194,R
Are Cashback or reward points awarded by credit card issuers subjected to 194R?
Purchase of watch for business development of Rs.25000/- with each 5000/- separate bills. it is applicable 194R
Sir, this section is applicable if any gift or perks given to any resident person during the year exceeds Rs 20000/-.
Limit of Rs. 20000 is (per person).
So in this case of yours (2 assumptions)
1. If watch is provided to 5 different person in that case sec 194R is not attracted as limit of Rs 20000 person is not crossed.
2. If Watch is provided to same person than Sec 194R is applicable as it crosses the Limit of Rs. 20000 during the year.
Thanks for your knowledge sharing with us.
Incase Rs 25000/- purchase of gift for business development to 4 person in single bill 194R applicable.
No TDS U/s 194R, as Threshold Limit of Rs. 20000 is per person and not per bill or payment.
As per CBDT vide Circular No. 12/2022 dated 16.06.2022 no TDS will be required to deduct on sales discounts, cash discount or rebates allowed to customers so in Question No. 4 as above no TDS will be deduct.
Whether TDS is to be deducted incase of Free Samples given to clients (Specially incase of Pharma sector, i.e. free samples of Medicines given to Medical Practitioners)
Yes, this section is introduced majorly for disclosure of income by Traders (Electronics, Cement, Tobacco, etc.) and medical professional.
Hence Medical Professional receiving the free samples is for his business and same shall follow within the meaning of Sec 28 (iv) of Income Tax Act 1961, Hence TDS U/s 194R shall be attracted on companies providing Free Samples to medical professional.
Section 194R TDS on Perquisites
This section is applicable from 1 July 2022 on all person who is responsible for providing any benefit or perquisite to a resident @10% of the value of perquisite.
This Section is not applicable on individuals/ HUF whose turnover is less than 1 cr/50 lakhs dealing in Goods and Service respectively
It is deductor’s responsibility to deduct TDS@10%.
FAQs on Section 194R
Question 1. 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, Section 194R of the Act casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @10%.
Question 2. Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?
Answer: Tax under section 194R of the Act is required to be deducted whether the benefit or perquisite is in cash or in kind
Question 3. Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is in the form of capital asset?
Answer: As has been stated in response to question no 1, there is no requirement to check whether the perquisite or benefit is taxable in the hands of the recipient and the section under which it is taxable. Thus, the deductor is required to deduct tax under section 194R of the Act in all cases where benefit or perquisite (of whatever nature) is provided.
Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite?
Answer: Sales discounts, cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of customer is also reduced. Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/perquisite, tax is required to be deducted.
Question 5. How is the valuation of benefit/perquisite required to be carried out?
Answer: The valuation would be based on fair market value of the benefit or perquisite except in following cases: –
(i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite.
(ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite. It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.
Question 6: Many a times, a social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media. Is this product given to such influencer a benefit or perquisite?
Answer: In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 1948 of the Act.
Question 7: Whether reimbursement of out-of-pocket expense 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.
Incase of case no.4,
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,
Entire Rs.25000 is not taxable. As per the circular issued by CBDT on 16/06/2022 on the same( Q NO 9), For calculating threshold limit only whole year is to be considered. However for calculating TDS only Benefits paid after 1/7/2022 to be considered.
so,
TDS on amount = 15000
TDS amount = 1500(15000*10%)
Thanks for the correction sir.
The answer provided by you is correct for case 4
I have rectified my mistake and have send revised mail to my clients accordingly after FAQ released by IT Department via Circular No. 12 of 2022 on 16/06/2022.
As i have published this article on 01/06/2022 and notification was issued on 16/06/2022, moreover there is no correction or rectification allowed in Taxguru article once published, hence couldn’t rectify the said interpretation error.
I appreciate your comments for correction.
Moreover my presentation was copied and presented word to word on https://www.youtube.com/watch?v=55ohuWPpMZs ask her to rectify the mistake.