Summary of TDS under section 194R and FAQ’s by CBDT

Circular No. 12 of 2022, Dated: 16.06.2022

To increase the tax base, the government has inserted a new section 194R in the Income-tax Act, 1961 (Act) through the Finance Act, 2022, with effect from July 1, 2022.

Section 194R would mandate a person to deduct tax at source at 10% on providing any benefit or perquisite, whether convertible into money or not, to a resident arising during the course of business or profession.

The liability to deduct the tax at source would not arise in the following cases:

1. If the aggregate value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed INR 20,000.

2. On the person, being an Individual/ Hindu undivided family (HUF), whose total sales/ receipts / turnover from business does not exceed INR 1 crore or from profession does not exceed INR 50 lakh, during the immediately preceding FY.

Further, by inserting section 194R(2), the government authorises the Board to issue guidelines, for the removal of difficulties, with the approval of the Central Government and after being laid before each House of Parliament. In this regard, CBDT has come up with guidelines on June 16, 2022. which majorly cover the following points:

• The Deductor is not required to check the taxability of perquisites or benefits in hand of the recipient.
• There is no requirement that the perquisite or benefit must be in kind; the same could be in the form of cash also.
• If a seller is giving any sales discount, cash discount, or rebate on the sale of any product, then the said discount or rebate shall not form part of the perquisite or benefit. Consequently, section 194R would not apply in that case.
• The FMV of perquisites or benefits in kind shall be used to value them.
• • On the other hand, if the Deductor purchased the perquisite or benefit, then the purchase price shall be the value of such benefit or perquisite.
  • If the provider of the benefit or perquisite is a manufacturer of such items, the price charged to its customers for such items shall be the value of such benefit or perquisite.
• If a sample copy of a product is given to social media influencers for the purpose of shooting and that product is duly returned to the Deductor after giving his services, then there would be no TDS liability. whereas, after services, if products are kept with influencers, then TDS u/s 194R would be required.
• Reimbursement of out-of-pocket expenses to a service provider would be considered a perquisite or benefit. Consequently, tax u/s 194R would be required to be withheld. However, if invoices for such expenses are in the name of the Deductor itself, then TDS u/s 194R would not apply.
• Expenses exclusively incurred to educate the dealers about the products of the company would not be deemed a perquisite or benefit. Therefore, section 194R would not apply in that case.
• If perquisites or benefits are in kind, then to ensure the compliance of section 194R, the Deductor shall take a declaration and a copy of the corresponding advance tax challan from the recipient. The Deductor must report the challan number while filing his TDS return.
• The limit of INR 20,000 has to be calculated from April 1, 2022, and the liability to withhold the tax would arise only on the transactions that accrued after July 1, 2022.