In the Budget 2022, the memorandum explained that as per clause (iv) of section 28 of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite. However, in many cases, such recipient does not report the receipt of benefits in their return of income, leading to furnishing of incorrect particulars of income.
To widen the tax base, Section 194R has been inserted which is effective from 01 July 2022.
LEGAL PROVISION
Deduction of tax on benefit or perquisite in respect of business or profession.
Section 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:
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.
EXEMPTIONS ALLOWED UNDER THE PROVISION OF SECTION 194R OF THE ACT.
CLARIFICATIONS
Q.1 Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?
Ans: No. The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands or the recipient under clause (iv) of section 28 of the Act.
Q.2 Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?
Ans: Section 194R of the Act clearly brings in its scope the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.
Q.3 Is there any requirement to deduct tax under section 194R of the Act when the benefit or perquisite is in the form of capital asset?
Ans: Various judgements are in favor that benefits or perquisites to be taxable even though one can argue that they are in the nature of capital asset. Therefore, even if the benefit or perquisite is a capital asset, then also the provision of this section shall apply.
Q.4 Whether sales discount, cash discount and rebates are benefit or perquisite?
Ans:
- It is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.
- No tax is required to be deducted under section 194R of the Act on the transaction where goods or service are given free with commercial sale of goods under a package. (e.g. Buy1 Get1 free)
- However, tax shall be deducted in the case of Free sample distribution of Goods.
Q.5 How is the valuation of benefit/perquisite required to be carried out?
Ans:
- Incase of trading, the purchase cost shall be the value of benefit/perquisite.
- Incase of manufacturing, the price to be charged from customer shall be the value of benefit/perquisite.
Q.6 Many a times, a social media influencer is given a product of a manufacturing company so that can use that product and make audio/video to speak about that product is social media. Is this product given to such influenced a benefit or perquisite?
Ans: If the product is retained, then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section l94R of the Act.
Q.7 Whether reimbursement of out-of-pocket expense incurred by service provider in the course of rendering service is benefit/perquisite?
Ans: The cost incurred by the supplier like hotel accommodation, travel, etc. which is incurred and charged back to the customer shall be subject to TDS under the provision of section 194R of the Act because the benefit has been given by the customer to the supplier.
However, if such cost has been incurred and the invoices are taken in the name of customer, then the TDS shall not be withheld as it will be considered as expense wholly and exclusively incurred for the customer by the supplier.
Author Comment: This case is very regular in the service industry. One has to be cautious about the current and proposed arrangements.
Q.8 If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite?
Ans: Where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
- New product
- Discussion as to how the product is better than others
- Obtaining orders from dealers/customers
- Teaching sales techniques to dealers/customers
- Addressing queries of the dealers/customers
- Reconciliation of accounts with dealers/customers
However, if the conference is for leisure trip, family members are accompanying the conference, extended stay more than the conference dates, then TDS shall be deducted under this provision.
Q.9 Section 194R provides that if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite i.e. required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or How can such person be satisfied that tax has been deposited?
Ans: The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. This year Form 26Q has included provisions for reporting such transactions.
The benefit provider may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after considering the fact the tax paid by him as TDS is also a benefit under section 194R of the Act in the Form 26Q he will need to show it as tax deducted on benefit provided.
Q.10 Section 194R would come into effect from the 1 July Second proviso to sub- section (1) of section 194R of the Act 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 to a resident during the financial year does not exceed twenty thousand rupees. It is not clear how this limit of twenty thousand is to be computed for the Financial Year 2022-23?
Ans: Since the threshold of Rs. 20,000 is with respect to the financial year, calculation of value or aggregate of value of the benefit or perquisite triggering deduction under section 194R of the Act shall be counted from 1 April 2022.
The benefit or perquisite which has been provided on or before 30″ June 2022, would not be subjected to tax deduction.
Author Bio
