TDS on benefit or perquisite of a business or profession – Section 194R of Income Tax Act 1961 (Introduced by union budget 2022 read with Circular No 12 of 2022 dated 16th June 2022)
In the current competitive era of business and profession, it is very often to receive benefit or perquisite in the course of exercising business or profession. For example, Mr. X, a dealer of smartphone exceeds the sales target given by the company and rewarded with latest model on Bullet bike value of INR. 2,50,000. The value of bullet received by the Mr. X is perquisite/benefit in the course of business and taxable as PGBP Income. As per clause (iv) of section 28 of the income tax act 1961, the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession and to be charged as business income. However, in many cases, such recipient doesn’t report receipt of benefits in their Income tax return, leading to furnishing of incorrect particulars of Income.
To establish transparent mechanism so that any non-reporting or misreporting can be identified easily, the Union Budget 2022 came up with new section 194R. The text of the section is as hereunder:
194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:
Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:
Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:
Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation. —For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.]
As per provision of Section 194R, A person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from carrying out of a business or exercising profession by such resident, shall, before providing such benefit ensure deduction of tax at the rate of Ten percent (10%). No tax shall be deducted if the aggregate value of perquisite /benefit paid or likely to be paid to a resident doesn’t exceed INR. 20,000 during the financial year. Further, the provision of this section shall not apply to Individual or a HUF, whose total turnover/sales/receipt doesn’t exceed INR. 1 Crore in case of business or INR. 50 Lakh in case of profession. This section will come into force from 1st July 2022. The summary of the provision is as hereunder:
Summary of Section 194R of The Income Tax Act 1961
|1st July 2022|
|TDS to be deducted by||Business or Profession|
|To be deducted on||Any Prerequisite / Benefit to RESIDENT|
|Nature of Benefit or Prerequisites||In Cash or In Kind or Partially in cash and Partially in Kind.|
|Rate of TDS||10%|
|No TDS||If the aggregate value doesn’t exceed INR. Twenty Thousand in a Financial Year.|
|Not applicable in case of Individual||If the Turnover of Business doesn’t exceed INR. One Crore.|
If the Turnover of Profession doesn’t exceed INR. Fifty Lakh.
Further, to remove difficulty under section 194R, CBDT Issued a detailed guidelines via Circular No 12 of 2022 dated 16th June 2022. The gist of the guidelines is as hereunder:
|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?||The deducted is not require checking whether the amount is taxable in the hands of recipient.|
|Question 2. Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?||The benefit may be in Cash or Kind or Partially in Cash and Partially 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?||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.|
|Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite?||No tax to be deducted u/s 194R on sales discount, cash discount or rebate allowed to customers.|
|Question 5. How is the valuation of benefit/perquisite required to be carried out?||• Purchased: Purchase Price
• Manufactured: The Price charges to other customers for this benefit or perquisite.
|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?||• If product Retained by Influencer – TDS Deductible u/s 194R
• If product returned by Influencer – NO TDS
|Question 7: Whether reimbursement of out-of-pocket expense incurred by service provider in the course of rendering service is benefit/perquisite?||• If the Invoice of expenses incurred is in the name of ultimate service recipient – No TDS u/s 194R
• If the Invoice of expenses incurred is in the name of Service Provider –TDS to be deducted u/s 194R
|Question 8: If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite?||If the dealer conference is held with the objective to
– Launch New Product
– Discuss Supremacy of his product
– Obtain Orders
– Teaching Sales Technique
– Addressing Queries
– Reconciliation of Accounts
However, Conference should not benefit or incentivize dealers /customers to meet sales target.
Following case would consider as benefit or perquisite for section 194R:
– Leisure Trip or Leisure Component, even if incidental to dealers/business conference.
– Family members accompanying the person attending dealer/business conference.
– Expense of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
|Question 9: 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?
|– Recipient would require to pay tax in the form of Advance Tax and share the copy of challan to Diductor.
– Alternatively, Benefit provider may deduct the tax under section 194R of the Act and pay to the Government
Question 10. Section 194R would come into effect from the 1st of July 2022. Second proviso to subsection (I) of section 194R of the Act provides that the provision of this section does not apply where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to a resident during the financial year does not exceed twenty thousand rupees. It is not clear how this limit of twenty thousand is to be computed for the Financial Year 2022-23?
– To compute Aggregate Value for applicability of Limit of INR. 20000 in a financial year, the benefit or perquisite provided from 1st April 2022 shall be included.
– However, any benefit or perquisite paid till 30th June 2022 shall not be subject to TDS u/s 194R.
Kindly note that any benefit or perquisite provided in the course of employment will not invoke the provision of Section 194R of The Income Tax Act 1961. Any perquisite given in the course of employment shall be dealt as per section 192 of the Income Tax Act 1961.