TDS on Benefit or Perquisite under section 194R

TDS under Section 194R of Income Tax Act In Respect of Business or Profession, Deduction of Tax on Benefit or Perquisite

Our impression is that any kind of benefit or perquisite is available to salary person. But it is available to business or profession income also. On particular for these kinds of benefit tax is to be deducted from 1^st July, 2022 under Section 194R of the Income Tax act, 1961.

Finance Act, 2022 inserted a new section 194R in the Income Tax Act, 1961 with effect from 1^st July, 2022.

Any person responsible for providing to a resident, any benefit or perquisite, whether convertible in to 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 percent of the value or aggregate of value of such benefit or perquisite. The benefit of perquisite may or may not be convertible in to money but should arise either from carrying out of business or from exercising a profession, by such resident.

If the aggregate value of benefit or perquisite provided or likely to be provided to the resident does not exceed Rs. 20,000 during the financial year, deduction is not required to be made.

If the total sales / gross receipts / gross turnover from business does not exceed Rs. 1,00,00,000 or from profession does not exceed Rs. 50,00,000 during the financial year immediately the financial year in which such benefit or perquisite is provided by an individual or Hindu Undivided Family deduction is not required to be made.

It has also been provided that in 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.

By reading sub section(2), it seems that this not the final,  as mentioned that if any difficulty arises in giving effect to the provision of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing difficulty.

Sub section (3), is also that much important because it says  Every guidelines issued by the Board under subsection (2) shall, as soon as may be after it is issued, be laid before the House of Parliament, and shall be binding on the income tax authorities and on the person providing any such benefit or perquisite.

Accordingly, in exercise the power conferred by sub-section(2), the Board, with the prior approval of the Central Government, hereby issues the guidelines with the questions and answers, few important are given below:

• Section 194R would come in to effect from 1^st July, 2022. Second proviso to sub section (1), 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, during the financial year does not exceed twenty thousand rupees.

It is not clear how this limit of twenty thousand rupees is to be computed for Financial Year 2022-23?

It is hereby clarified that.-

Since threshold limit of twenty thousand rupees is with respect of the financial year, calculation of value or aggregate of value of benefit or perquisite triggering deduction under section 194R shall be counted from 1^st April, 2022. Hence, if the value or aggregate value of the benefit or perquisite provided or likely to be provided exceeds twenty thousand rupees during the financial year 2022-23, including the period up to 30^th June, 2022, the provision of section 192R shall apply on any benefit or perquisite provided on or after 1^st July, 2022.

Whether the benefit or perquisite which has been provided between 1^st April, 2022 to 30^th June, 2022, would not be subjected to tax deduction under section 194R.

Illustration: A company has provided benefit or perquisite of Rs. 60,000 during 1^st April, 2022 to 30^th June, 2022 and thereafter does not provide any benefit or perquisite, the question of tax deduction does not applicable on Rs. 60,000 though during financial year 2022-23 total benefit or perquisite exceeds Rs. 20,000

• Whether sales discounts, cash discount or rebate allowed to customers are considered as benefit or perquisite?

Logically these are also benefits though related to sales/purchase. Sales discounts. Cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of the customer is also reduced. However it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty, it is clarified that no tax is to be deducted under section 194R on sales discount, cash discount and rebate allowed to customers.

Let’s take another situation, instead of sales discount, cash discount or rebate, if the seller is selling 12 items at a price of 10 items. Under this situation, it is clarified that, no tax required to be deducted u/s 194R. It is clarified that situation is different when free samples are given.

Similarly, these relaxation should not be extended to other benefits provided by the seller in connection with its sale. To illustrate, the following are the examples of benefit/perquisites on which tax is required to be deducted

• When a company sponsors a trip for the recipient upon achieving certain targets
• When a person gives incentive, in the form of cash or kind such as car, TV, computers, refrigerators, mobile etc.
• When a person provide free ticket for an event

The above examples are only illustrative. The relaxation provided from non deduction of tax for sales discount and rebate is only on those items and should not be extended to others.