Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession

1. Applicable from 01-07-2022.

2. Rate of TDS = 10%

3. Limit of Deduction = Exceeding Rs. 20,000 in a F.Y.

4. Deductor = Any Person- Carrying Business/Profession (Except-Individual/HUF Not Liable to Tax Audit in P.F.Y)

5. Deductee = Resident

Some Examples of Benefits/Perquisites- as illustrated in the CBDT Guideline

  • Incentives (other than discount, rebate) in the form of cash or kind such as Car, TV, Computers, Gold Coin, Mobile Phone etc.
  • Sponsor of a trip for the Recipient and his/her relatives.
  • Providing Free Ticket for an event.
  • Providing Free Samples.
  • Expenditure on Leisure Trip/Leisure Component with Business Conference Trip
  • Expenditure on Family accompanying-the person on Business Conference Trip
  • Expenditure on Prior Stay/Over Stay of Participants on Business Conference Trip

(The above examples are only illustrative.)

6. Valuation of Benefit or Perquisites:- (FMV, Exclusive of GST)

  • Purchased : Purchase Price
  • Manufactured : Price Charged from other outside customers

7. Methods of deduction of TDS/way to Ensure TDS deduction/deposit.

  • Deduction/Payment by Provider: Gross up method to be followed

OR

  • Tax Payment by Recipient: Obtain Declaration and a Copy of Advance Tax Challan that the due tax has been Paid.(This is also to be reported in Form 26Q- TDS Return)

9. What to do for Period from 01-04-2022 to 30-06-2022 as the TDS is Applicable From 01-07-2022

  • For Calculation of Threshold Limit:– Benefit Provided during 01-04-2022 to 30-06-2022 to be considered
  • For TDS Deduction:- TDS is Only Deductible on Benefit Provide after 01-07-2022

Summary/Extract of – CBDT- Circular No. 12 of 2022- dated 16th June, 2022

Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income tax Act, 1961

S. no. ISSUE UNDER CONSIDERATION SUGGESSTIONS
1. Do we need to assess Taxability in the hands of Recipient? NO

(may be Taxable or Exempt in the hands of Recipient, But TDS applicable)

2. Type of Benefit/Perquisites liable to TDS u/s 194R Both

(in Cash or in Kind)

3. Does the Nature of Benefit/Perquisite-( i.e. Capital Assets or not in the hands of Recipient) affects TDS applicability NO

(may be Capital or Revenue in nature, But TDS applicable)

4. Applicability of Discounts-(Sales Discounts/Cash Discounts/Rebates)

  • Is Benefit/Perquisite as per Sec-194R
  • Is TDS Applicable on Such Discounts?
  • Yes
  • No – (Because Relaxation given in the said guidelines on said Discounts)
5. Free Samples-

  • Is Benefit/Perquisite as per Sec-194R
  • Is TDS Applicable on Such Free Samples
Guideline clearly states at Page-4 that the Above Relaxation would not apply to a situation of Free Samples.

  • Yes
  • Yes
6. What if the said Benefit/Perquisites is used by other Person e.g. Owner/Director/Employee of Recipient?

Case 1: Benefit/Perquisite provided by Recipient to Employee of X Ltd.

Case 2: Benefit/Perquisite provided by Recipient to Consultant of X Ltd.

User doesn’t matter, TDS to be deducted in the name of Recipient.

(if it occurs due to their relation with recipient entity)

1. TDS Liable to be Deducted of X Ltd.

2. Two Options Given-

  • TDS may be Deducted of X Ltd. or
  • Alternatively TDS may be Deducted of Consultant.
7. Benefit/Perquisites- provided to a Government entity

  • Carrying on Business or Profession
  • Not- Carrying on Business or Profession (e.g. Government Hospitals)
 

  • TDS Liable to be Deducted
  • TDS Not Liable
8. Products- Given to Social Media Influencer– for making video/audio/speak about product etc.

  • In Case product is Returned back.
  • In Case product is Not Returned back.
  • TDS Not Liable
  • TDS Liable to be Deducted
9. Reimbursement of Expenditures to Service Providers / Consultants etc.

  • If the Expenditure was Liability of Service Provider(Consultant) and is Paid by Recipients
  • However- if Invoices are in the Name of Recipients- (Payment or Reimbursement not important) Expenses Incurred Wholly and Exclusively for the purpose of rendering services to Recipient.
  • Considered to be Benefit/Perquisite provided by Recipient to Service Provider and TDS Liable
  • TDS Not Liable.
10. Business/Dealer Conferences-

  • Generally Not Considered to be as Benefit/Perquisites
  • But if Only to Incentivise- Select Dealers Trip with Business Conferences
  • Leasure Trip/Leasure Component
  • Family Member
  • Prior Stay/Over Stay
  • TDS Not Liable
  • TDS Liable to be deducted
  • TDS Liable
  • TDS Liable
  • TDS Liable

Section-194R-

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:

Section 194R TDS on Benefits-Perquisites-Gifts arising out of Business or Profession

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.

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Member Since: 07 Sep 2021 | Total Posts: 1

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