As we all know w.e.f. 1st July, 2022 a new section 194R related to TDS On Benefit or Perquisite under Tax Deduction chapter has been made effective – brief of compliances is as under:
A. LEGAL PROVISIONS:
1. What event/transaction attracts provisions of this section:
When any person, except individual or HUF if their business/professional turnover is less than 100/50 lacs respectively, pay in cash or in kind any benefit or perquisite valued more than Rs.20,000/- in any financial year to any person during the course of business or professional transactions then the provisions of section 194R are applicable w.e.f. 1st July, 2022.
2. What is the rate of Tax:
At the rate of 10% of value of benefit or perquisite, in cash or kind, also ensure it should be deducted before paying/providing such benefits/perquisites.
3. How the value benefits or perquisites shall be calculated:
When perquisite or benefit is in cash then the value paid in cash and if in kind then it will be the market value of the similar item available in open market.
For example, if to any doctor pharma companies give TV/Fridge etc then it will be valued as per the market value of that brand & model and if provide free pleasure trip to him or along with his family then whole value paid for arranging trip shall be the value of benefit provided. If, free samples of medicines gave then market value of medicines shall be the value of perquisite.
Further, if any item, which is being dealt/manufactured by owner and then provided to any business associate as incentive/benefit then the value shall be the sale price to the customers in open market excluding GST not purchase or procurement cost.
4. Who is responsible to deduct or to deposit the TDS:
1. In case benefits/perquisites paid in cash or cash & in kind both and cash is enough to take care of 10% TDS on whole value then the payer shall deduct before making such payments/benefits. For example, Rs.1 lac cash and a Baleno car (suppose cost is 8.5 lacs) is given by a pharma company directly to an Individual doctor then pharma company has to deduct TDS on 1 lac + 8.5 lacs @10% that is Rs.95,000/- then pharma company shall pay only Rs.5,000/- cash after deducting 95,000/- as TDS.
2. Now in above example if car is costing Rs.10.5 lacs along with 1 lac cash incentive then TDS amount shall be Rs.1.15 lacs to be deducted from doctor by pharma company, which is more than cash incentive of Rs.1 lac, then namely two situations arise:
a. The doctor is self practice and not associated with any hospital then it is responsibility of Doctor to deposit as advance tax for Rs.15,000/- and pharma company shall pay Rs.1 lac as TDS in doctor a/c and this is responsibility of pharma company to check whether doctor has deposited the advance tax or he can rely on a undertaking from doctor along with Advance Tax challan that he has deposited the advance tax before using the car.
b. The doctor is self practicing and associated with any hospital then it is responsibility of hospital to deposit as TS/advance tax for Rs.15,000/- and pharma company shall pay Rs.1 lac as TDS in doctor a/c and this is responsibility of pharma company to check whether hospital has deducted from doctor in addition to regular TDS and if no TDS or amount due to doctor is not sufficient to TDS then pay the advance tax exact to amount or he can take in writing from hospital a undertaking that they have deposited the advance tax along with Advance Tax challan before allowing doctor to use car given by pharma company. Therefore it is mandatory for pharma companies in case of gifts in kind to the doctor to take undertaking & challan from hospital with which doctor is attached.
B. Practical guide for correctly implementing this section:
1. Typical examples of section applicability:
i. The payer is not responsible to ascertain whether the benefit/perquisite is taxable in the hands of recipient (payee) – it may be domestic asset, it may be a capital asset – in any case no applicability of tax liability in the hands of recipient is to be checked by payer, in any case he has to deduct the tax at source at the time of providing/paying benefit or perquisite.
ii. Incentives to the buyers – cash or in kind like car/TV/fridge/mobile etc
iii. Sponsoring a pleasure trip/free tickets etc
iv. Amount paid to an Advocate for his tickets/fooding/lodging for any legal case and he raises a debit note or bill of re-imbursement – on such payments directly to advocate is taxable. The payer can get relaxation if advocate takes bills in client name like hotel is booked and paid in client name and so on.
v. In case of hospitals, no benefit is passed on to Hospital but incentives paid to doctors by pharma companies, even then in case of incentives in kind shall attract liability of tax deposit to Govt by hospitals. (as given in example supra)
vi. Free samples given to medical practitioners. They may employ/consultant at any hospital however hospital shall be treated as recipient of benefit.
vii. The incentives in the shape of pleasure trips may to only Company owner’s relative/director relatives etc and they are not in business/professional even then it attracts the provisions and the TDS shall be deposited in the name of owner/businessmen or professional.
viii. Suppose, a real estate’s brand ambassador get a home as incentive or fee for promoting brand then it is covered and will attract TDS @10% of house value as per the open market rate and including registry charges, if paid by company.
ix. Even a business expense but if it is a leisure trip then in any case it is not exempted for example in below 2(v) clause activities described and company organises in Maldives three days trip while company has also office at Maldives but it will be counted in leisure trip so provisions shall be attracted.
2. What is exempted in benefits/perquisites value:
i. If aggregate value does not cross the limit of Rs.20,000/-; during F.Y.2022-23 it has been implemented w.e.f. 1-7-22 but value of aggregation shall be computed from 1-4-2022 to 31-3-2023.
ii. Sales discounts/cash discounts/and rebates allowed to the customers from declared/listed retail price.
iii. Buy two get one free offer is also not covered
iv. If the benefits are provided to Govt Entity i.e. Govt hospitals not meant for income.
v. As example, any dealer conference/seminar for doctors organised by company then till it is for educating for new technology or product launch or obtaining orders or reco. of accounts etc will not cover but if it is in kind of any incentive by hiding behind such caption of expense that will be eligible for dedcutions.
3. When Tax has to be deducted/paid- by payer or recipient:
Most important aspect – any person who is providing such benefits or perquisites has to has ensure that tax has been deducted on or before providing such benefits. So, if you are organizing a pleasure trip then equal to 10% of cost of that trip to be incurred shall be deposited by recipient in Govt exchequer before start of that trip. It will be in the shape of Advance Tax equal to that amount or you can take declaration that amount deposited is included the TDS amount along with advance tax challan. For, example if to doctors and they are on roll or hospital or consultant then take it from hospital.
It is mandatory to deduct & deposit before releasing the benefits/perquisites not later other wise late penalties shall be imposed.
4. No loss to the payer:
This is only a administrative tax procedure with the help of this any person who has got the amount in shape of incentive/benefits/perquisites etc will be notified to the Govt. The benefit of advance tax shall be taken at the time of filing ITR either it will be reduced from your tax liability or shall be refunded by department if paid in excess of tax dues.
Further, suppose doctors are on your roll and benefits passed on by pharma company to doctors then you can after paying advance tax to Govt before release and at the same time you can show as perquisite to employee doctor and deduct tax on that this will equate your cash outflow.
The aggregate value of 50,000/- exempted limit for gifts shall be available at the time of filing ITR.
C. How to start procedure as defined u/s 194R
Educate to your accounts team, issue circulars to concerning staff/HR along with Govt Circular so that they can further educate to businessmen/professionals etc. Here are few drafts for you:
SPECIMEN LETTER TO DOCTOR/PHARMA Co. BY HOSPITAL
M/s or Mr/Ms——————
Subject: Tax Deduction u/s 194R on the benefits/perquisites provided to you during 2022-23
This is to inform you that a new section 194R of Income Tax Act, 1961 has been implemented by Govt. w.e.f. 1-7-2022 (copy of section is attached) which requires to deduct/deposit of advance tax on any benefits/perquisites provided to you by any pharma or any other company to you or your family which value is being crossed the basic limit of Rs.20,000/- for the F.Y. 2022-23 (1-4-22 to 31-3-23) – it may be in cash or in kind like pleasure trip/electronic goods/gifts etc please inform to us before enjoying the benefits.
This is to further inform you, if the provider of benefits has already deducted tax on it then we need proof of that and if not, then we have to deposit “Advance Tax” equal to 10% of value to be enjoyed by you – so please give exact details & value of benefit so that we can deposit advance tax on the same before you start to enjoy or use the items.
This is mandatory, and in any case if you do not inform us then onus of non-compliance of tax provisions shall be on you, kindly acknowledge the letter in it’s true spirit and help us in complying Income Tax provisions on time.
Note: For more details you can contact to accounts department Mr————————.
(Authorised – Designation)
SPECIMEN OF DECLARATION BY DEPOSITOR
(It may be given in case of benefits in kind by recipient or his employer to provider)
Sub: Declaration for depositing the Advance Tax u/s 194R for the specific benefit/perquisite
With reference to your declaration No. ———— dt…………..,this is to inform you that we have deposited Rs.—————— through challan No. ———— dt—————– as advance tax which includes Rs.————- @10% of the value for Car given as gift to Mr—————- who is employee/consultant of our company. (This language shall be used when collective tax deposited otherwise write specific amount.).
Copy of challan is attached herewith; we are taking your information correct in its total value if anything finds later difference of value then liability shall be yours. Kindly acknowledge the same and give us receipt on account of correctness of amount deposited as TDS by us on the benefits/perquisites provided by you to Mr/Dr——————— on the date ——————.
Therefore, if you find it in order then you can allow to use the above said car to Mr/Dr—————- onwards.
(Authorised – Designation)
Article Written By – Rajiv Nigam, FCA can contact at firstname.lastname@example.org