Section 194R TDS on Benefits or Perquisites under Income Tax Act 1961

Questions

• Who is responsible to deduct the TDS u/s 194R ?
• If Recipient is not having PAN Number then whether TDS would be deducted at 20% ? Whether surcharge and cess is applicable?
• If Taxpayer has not claimed deduction in respect of such benefits and/or perquisite to provided to the Recipient , then whether TDS is deductible?
• Provisions of Section 194R applicable to whom?
• Does the payer need to examine as to whether Recipient of Benefits or Perquisite is subject to tax under the provisions of the Income Tax Act 1961 ?
• If the value of benefits or perquisite provided or to be provided is less than 20K as per records maintained for each recipients, whether TDS needs to be deducted u/s 194R?

• Taxpayer who is providing benefits and/or perquisites or any proper officer in charge of deducting such TDS as per the provisions of the Income Tax Act 1961 ?
• If Recipient is not having PAN Number, then, Taxpayer needs to deduct TDS @ 20%. No surcharge and cess is to be recovered.
• No, if it is not claimed as business expenditure, then, TDS provisions u/s 194R shall not apply as per my understanding.
• Provisions of Section 194R are applicable to the assessees who are carrying on business or profession subject to some exceptions. (Please check non applicability slide to examine as to when such provisions are not applicable.
• Payer need not examine whether recipient is liable to tax or not. Payer is just required to deduct the TDS as applicable @ 10% or as per Chapter XVII-B of the Act.
• If the value of benefits or perquisite provided or to be provided is less than 20K as per records maintained for each recipient, then, TDS u/s 194R need not be reported?

• If the value of benefits or perquisite provided or to be provided is more than 20K as per records maintained for each recipients, whether TDS needs to be deducted u/s 194R?

• Yes, if the value of benefits or perquisite provided or to be provided is more than 20K as per records maintained for each recipients, then, TDS u/s 194R needs to be deducted.

• If the value of benefits or perquisite provided or to be provided is less/more than 20K as per records maintained for each of the employees of the company then, whether TDS needs to be deducted u/s 194R?
• When TDS deducted u/s 194R needs to be deposited with Govt. Treasury?
• How TDS deducted u/s 194R would be reported by the Taxpayer in the TDS Returns?
• Whether Taxpayer is required to issue TDS certificate in Form 16A to the recipient who has received such benefits or perquisite on which TDS u/s 194R is deducted?
• Whether such TDS would reflected in Form 26AS/AIS of the recipient?
• If TDS is not deposited by the Taxpayer within time limits prescribed, then whether interest u/s 201(1A) would be applicable?
• If TDS is not deducted by the Taxpayer for providing benefits and/or perquisites, then whether such expenses would be disallowed u/s 40(a)(ii) of the Income Tax Act, 1961.
• Does the Tax Auditor need to report such TDS deducted in clause 34 of the Tax Audit Report in Form 3CD?
• If TDS is deducted & not deposited or not deducted but not reported in TDS Returns by the Taxpayer for providing benefits and/or perquisites, then whether such non reporting needs to be reported in clause 34 of the Tax Audit Report in Form 3CD?
• If TDS is deducted and not deposited or not deducted, then whether Recovery proceedings under Chapter XVII-B can be initiated by the ITD?
• Whether due to defaults in respect of the above, then whether penalty & prosecution proceedings under Chapter XVII-B can be initiated by the ITD?
• If Recipients of benefits and/or perquisites, if they raise Bills/Tax Invoices/Debit Notes & if Taxpayers deduct TDS under any other sections of the Act, say 194C/194J- then whether Taxpayer needs to deduct u/s 194R of the Income Tax Act 1961?
• If Recipients of benefits and/or perquisites, raise Bills/Tax Invoices/Debit Notes with GST, then whether Taxpayers can claim the same as input tax credit u/s 16 of CGST Act, 2017?
• Is it mandatory for the Recipients to report such benefits and/or perquisites in his Income Tax Returns if TDS is deducted u/s 194R?, If Yes, whether as business income or as Income from Other sources?
• Whether TDS deducted u/s 194R of the Income Tax Act , 1961 would be treated as prepaid tax in the hands of Recipient and it can off set against regular tax payable by the Taxpayer in his regular Income Tax Return under the provisions of the Income Tax Act, 1961 ?
• Is it mandatory for the Recipients to pay advance tax in respect of such benefits and/perquisites to be received by him in view of TDS deducted u/s 194R?
• Does the Taxpayer need to collect Advance Tax challan?
• If advance tax challan is not provided by the Recipient, does the Taxpayer deduct the TDS at maximum marginal rate?

• If the value of benefits or perquisite provided or to be provided is less/more than 20K as per records maintained for each of the employees of the company then & if TDS is deducted u/s 192B then, TDS u/s 194R need not be deducted.
• TDS deducted u/s 194R should be deposited on or before 7th day of succeeding month in respect of preceding month.
• Such TDS would be reported by the Taxpayer by filing quarterly TDS Returns in Form 26Q.
• Yes, TDS certificate needs to be issued in Form 16A as per time limits specified under the provisions of Chapter XVII-B of the Income Tax Act 1961.
• Yes, it would be reflected in Form 26AS/AIS of the recipients after the filing of TDS Returns as well as on the processing of the data by ITD.
• If TDS is not deposited by the Taxpayer within time limits prescribed, then interest u/s 201(1A) would be payable. Interest payable is mandatory.
• If TDS is not deducted by the Taxpayer for providing benefits and/or perquisites, then such expenses would be disallowed u/s 40(a)(ia) of the Income Tax Act, 1961 @ 30% of value of such benefits and/or perquisite if it is provided to Resident persons as defined u/s 6 of the Act.

Please note section 194R doesn’t apply to Non Resident recipient at all.

• Yes, Tax Auditor needs to report such TDS deducted in clause 34 of the Tax Audit Report in Form 3CD.
• Yes, if TDS is deducted or deposited or not deducted but not reported in TDS Returns by the Taxpayer for providing benefits and/or perquisites, then Tax Auditor needs to report such transaction in clause 34 of the Tax Audit Report in Form 3CD.
• Yes, if TDS is deducted and not deposited or not deducted, then, Recovery proceedings under Chapter XVII-B can be initiated by the ITD.
• Yes, due to defaults in respect of the above, then penalty & prosecution proceedings under Chapter XVII-B can be initiated by the ITD.
• If Recipients of benefits and/or perquisites, have raised Bills/Tax Invoices/Debit Notes & if Taxpayers has deducted TDS under any other sections of the Act say 194C/194J, then Taxpayer is not required to deduct TDS once again u/s 194R of the Income Tax Act 1961.
• If Recipients of benefits and/or perquisites, have raised Bills/Tax Invoices/Debit Notes with GST, then Taxpayers can claim the same as input tax credit u/s 16 of CGST Act, 2017 if all the relevant conditions and stipulations are satisfied & if not, then ITC cannot be claimed by the Taxpayer. TDS should not be deducted on GST levied on such bills if any.
• It is not mandatory for the Recipients to report such benefits and/or perquisites in his Income Tax Returns even TDS is deducted u/s 194R if in his opinion it is not his income. He should ensure that he should claim the benefit of TDS in his income Tax Return without offering to such income to tax as per the provisions of Section 199 of the Income Tax Act 1961. If he decides to claim TDS, then he offer such income as business income or Income from Other sources as per his choice.
• In view of the above as per his discretion, TDS can be claimed as off set against Regular tax payable while filing his income tax returns as per the provisions of the Income Tax Act 1961.
• Yes, Recipients, need to pay advance tax in respect of such income arising due to benefits and/or perquisites received by them. If Advance Tax is not paid then, he may liable to pay the interest u/s 234A, 234B & 234C as applicable.
• Taxpayer needs to collect the copyof advance tax from  such recipient. ??????
• Alternatively if such challan is not provided, does Taxpayer need to deduct TDS at maximum marginal rate i.e. 30% plus surcharge plus Cess ??????

Questions

• Whether TDS u/s 194R would be applicable if Trade Discounts, Cash Discounts, Rebates & Quantitative Discounts are provided to the customers or the recipients of the business activities of sales?
• Whether TDS u/s 194R would be applicable if dealer conference is organised by the Taxpayer about the products of the company?
• Whether TDS u/s 194R would be applicable if benefits and/or perquisites are provided to the customers or the recipients of the business activities either in cash or kind or partly in cash or partly in kind ? E.g. Incentives or Overseas Trip or Cash Price or Gold or Silver Jewellery or Free Ticket etc.
• Whether TDS u/s 194R would be applicable if benefits and/or perquisites are provided to the customers or the recipients of the business activities in the form of Capital Asset? Illustrative examples

E.g. Car, Land, Immovable Property, Air Conditioner, Fridge, Mobile Phones, Laptops, Printers, Electronic Equipment’s , Free Samples given to medical Practioners ???? etc.

• Whether TDS u/s 194R needs to be deducted in the hands of Recipient only or it can deducted in the hands of end user also?. For E.g. Company or alternatively its employees, directors or any other person.
• Whether TDS u/s 194R needs to be deducted if any goods are provided to Social Media Influencers?
• If such product is returnable?
• If such product is not returnable but it is to be retained by such recipient?
•  If such product is to be discarded after use?
•  Whether TDS u/s 194R needs to be deducted if any goods are provided to Recipient for Sales or business promotions only ?
•  If such product is to be discarded after its use or considering prevalent trade practices of the industry in which they operate?
• Whether TDS u/s 194R needs to be deducted in case of reimbursement of expenses?
• In the nature of Pure agent expenses
• In any other case
• If Benefits and/or Perquisites as envisaged u/s 194R are provided to the Govt. Authorities, will such provisions would trigger deduction of TDS u/s 194R ?
• If Benefits and/or Perquisites as envisaged u/s 194R are provided by the Govt. Authorities to the taxpayers, will such provisions would trigger deduction of TDS u/s 194R in the hands of Govt. ?
• Illustrative expenses incurred by Taxpayers for the purpose of business or profession:
  • 1. Travelling Expenses
  • 2. Common office Expenses like Printing & Stationery, Postage & Telegram, Courier, Repairs and Maintenance, Canteen facilities, In house recreational facilities etc.
  • 3. Staff Benefits schemes like, PF, ESIC, Super annuation, Common Healthcare & Insurance etc.
• Illustrative expenses incurred by Taxpayers for the purpose of business or profession in the form of business and sales promotions:
  • 1. Advertising- Online as well as offline
  • 2. Packaging, Pamphlets, Brochures, Product Catalogues, Coffee Book, Hoardings, Events sponsorships etc.
• Is Taxpayer required to deduct u/s 194R as well as u/s 194S (Virtual Digital Asset) if provided in the form of benefits and/or perquisites to the recipients ?
• E.g. Credit Card Spends Points, Digital Points accumulated as POS & Salons etc.

• TDS u/s 194R won’t apply if Trade Discounts, Cash Discounts, Rebates & Quantitative Discounts are provided to the customers or the recipients of the business activities properly reflected in Tax invoices issued by Taxpayer in the ordinary course of business activities of sales.
• TDS u/s 194R won’t apply if such conferences are organised for Product launches, Product Training, Generating Sales Orders from the dealers/ customers, Sales Training to the dealers/customers, Addressing Queries of the dealers/ customers & reconciliation of accounts with dealers/ customers. E.g. CME meetings of Pharma Industries
• Exclusions:- Conferences in the nature of benefits and/or perquisites, Leisure trips, expenses of family members of dealers/ customers, expenses incurred before and after the conferences ????, Sight seeing costs, social functions costs etc.
• TDS u/s 194R would be applicable if benefits and/or perquisites are provided to the customers or the recipients of the business activities either in cash or kind or partly in cash or partly in kind. TDS should be deducted @ 10% usually on or before providing such benefits or perquisites. E.g. Incentives or Overseas Trip or Cash Price or Gold or Silver Jewellery or Free Ticket etc.
• Yes, TDS u/s 194R would be applicable if benefits and/or perquisites are provided to the customers or the recipients of the business activities in the form of Capital Asset. Illustrative examples E.g. Car, Land, Immovable Property, Air Conditioner, Fridge, Mobile Phones, Laptops, Printers, Electronic Equipment’s Free Samples given to medical Practioners ???? (discussed in GST slides in detail) etc.
• Yes, TDS u/s 194R can be deducted in the hands of Recipient or alternatively it can deducted in the hands of end user also based on the choice exercised by the recipient. For E.g. Company or alternatively its employees, directors or any other person (Direct or Indirect provision of Benefits and/or perquisites)
• Supply of goods provided to Social Media Influencers for business promotions.
• If such product is returnable, then no TDS.

E.g. Clothes, Jewellery, Footwear etc.

• If such product is not returnable but it is to be retained by such recipient, then TDS needs to be deducted u/s 194R. E.g. Clothes, Jewellery, Footwear etc.
• If such product is to be discarded after use, no TDS to be deducted but it may be considered as scrap sales in normal course of business. E.g. Lipsticks, perfumes, daily use items etc.
• If any goods are provided to Recipient for Sales or business promotions only considering prevalent trade practices even though such product costs may be extremely high.
• TDS u/s 194R need not be deducted if such product needs to be discarded after its use. For E.g. Catalogues printed by Laminate/Paints /Ready Made Garments, Wine, Liquor & Perfume Manufacturers etc.
• In the case of reimbursement of expenses,
• If in the nature of Pure agent expenses, then TDS need not be deducted.
• In any others case, TDS needs to be deducted if not deducted under any other sections.
• No, if Benefits and/or Perquisites as envisaged u/s 194R are provided to the Govt. Authorities, then, TDS provisions u/s 194R would not trigger.
• No, if Benefits and/or Perquisites as envisaged u/s 194R are provided by the Govt. Authorities to the taxpayers, then also TDS provisions u/s 194R won’t trigger too.
• TDS provisions u/s 194R won’t trigger as all such expenses are incurred wholly and exclusively for the purpose of business and element of personal expenditure is not present and the element of capital expenditure is absent in such expenses incurred..
• TDS provisions u/s 194R won’t trigger as all such expenses are incurred wholly and exclusively for the purpose of business and element of personal expenditure is not present and the element of capital expenditure is absent in such expenses incurred.
• Yes, TDS provisions u/s 194R & 194S would trigger simultaneously in such cases. For e.g.
• (i) Gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services;
• (ii) Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services;
• (iii) Subscription to websites or platforms or application.
• Ref: Notification No 74 issued on June 30,2022.
• Note: Exception Legally enforceable NFTs resulting into acquisition of underlying tangible asset – Notification No 75 issued on June 30,2022.

Questions

• If Taxpayer has violated the provisions of Section 37(1) by providing any benefits or perquisite as contemplated u/s 194R of the Income Tax Act, 1961 under any other law applicable to business enterprise & such Taxpayer has deducted TDS, deposited TDS and complied with all the applicable provisions as envisaged, whether still the disallowance u/s 37 would survive?
• If Taxpayer has provided any benefit or perquisite as contemplated u/s 194R to any of its customers or stakeholders in general which is not violation of provisions of Section 37(1), then whether disallowance u/s 37 would trigger?

• Disallowance u/s 37 would survive if any such benefit or perquisite is given contrary to any provisions applicable under any law even though Taxpayer has deducted TDS u/s 194R and compiled with all the applicable provisions.
• Such disallowance would be detrimental to ease of doing business as Taxpayer needs to disallow such expenses while determining total income u/s 28 of the Income Tax Act 1961 and deduct TDS also. Such situation can be termed as double whammy viz. payment of tax due to disallowance & payment of TDS due to providing of such benefit or perquisite.
• If Taxpayer has provided any benefit or perquisite as contemplated u/s 194R to any of its customers or stakeholders in general which is not violation of provisions of Section 37(1), then in my understanding disallowance u/s 37 would not trigger. Only time will prove that whether such view sustains by as waters gets tested, probably involving litigations For e.g.
• In case of Pharma companies, if such benefit or perquisites provided to doctors or group of hospitals which do not contravene the provisions as formulated by MCI considering regulatory contours of medical practice, then such provision of benefits or perquisite may not trigger the disallowance u/s 37.