Introduction
Recently, Section 194R was inserted by the Finance Act 2022, which came into effect on July 1st, 2022. In simple terms, the new section mandates a person who is responsible for providing any benefit or perquisite to a resident to deduct tax at source at 10% of the value or aggregate value of such benefit or perquisite before providing such benefit or perquisite. The benefit or perquisite may or may not be convertible into money, but it must result from such resident’s business or professional activities.
However, no taxes to be deducted u/s 194R on sales discount, cash discount, or rebate are allowed to customers.
Who is responsible for deducting TDS under section 194R?
Any person resident in India receiving any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, shall, before providing such benefit or perquisite liable to deduct TDS u/s 194R.
Rate at which TDS under section 194R is deducted?
10% of the value or aggregate of value of such benefit or perquisite
When is TDS under section 194R not applied?
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.
What are some of the examples of benefits/perquisites on which tax is required to be deducted u/s 194R?
- When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc.
- When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets.
- When Out of Pocket Expenses, being incurred by the Service Provider, and being reimbursed to him by the Service Recipient, if the Bill/Invoice of such Out of Pocket Expenses, is not in the name of Service Recipient.
- When a person provides free ticket for an event.
- When a person gives Free Samples
- When a person gives medicine samples free to medical practitioners.
Valuation Mechanism for benefits/perquisites:
Valuation of benefit or perquisite would be based on fair market value of the benefit or perquisite except in following cases, where the value would be:
1. Purchase price- where the benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient and
2. Price that the provider charges to its customers for such benefit/perquisite where the benefit/perquisite provider manufactures such items.
Conclusion: Section 194R of the Income Tax Act, introduced recently, brings clarity on TDS obligations for benefits and perquisites provided to residents in India. It aims to regulate deductions at 10% of the value, ensuring compliance while exempting certain transactions like discounts or rebates. Understanding these provisions is crucial for businesses and individuals to navigate tax implications effectively and ensure adherence to regulatory requirements.
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