The Govt is very keen in finding out different sources through which the income earned by assessees are tracked and traced. We have been seeing introduction of multiple sections of TCS and TDS being introduced in last few years including 194O, 194Q, 206C and now 194R.

Section 194R is a new section to be introduced from 1st July 2022 on the benefit or perquisite given to a resident. The benefit may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession by such resident.  The rate of TDS is 10%.

Deduction is not required in case the value of benefit or perquisite given to a resident does not exceed Rs. 20,000 in a year. Further the responsibility of TDS deduction does not arise to an individual or HUF who’s business income does not exceed 1 crore or professional income does not exceed 50 lakhs in the previous financial year.

The Important points to be noted are:

1. TDS is deductible even if the benefit or perquisite is in cash or kind. Both cash or kind are brought under the purview

2. TDS is deductible even if the benefit or perquisite given to the resident is taxable/not taxable in the hands of the recipient. Provider need not have to check whether the benefit or perquisite given is taxable or not taxable in the hands of recipient at the time of such payments

3. TDS is deductible even if the nature of benefit or perquisite is capital in nature. CBDT circular has clarified that TDS is attracted even if the benefit given is in the nature of capital asset, quoting certain case laws in this regard

4. TDS is deductible in case of out of pocket expenses also from now on. CBDT circular No. 12/2022 dated 16.06.2022 has clarified that in case reimbursement of out of pocket expenses, if the bill/invoice Is not in the name of service recipient then TDS would be deductible on such expenses. This means, out of pocket expense is no more exempt from TDS purview unless bill in the name of service recipient. If the bill or invoice has to be in the name of the Service recipient/Company then it does not even fall under reimbursement character in most of the cases therefore the new section has removed the TDS exemption on out of pocket expenses completely.

5. Sales discount, cash discount, rebate though considered as benefit or perquisite but the same are not covered for deduction of TDS under 194R as clarified in the CBDT circular No. 12/2022 dated 16.06.2022 however, TDS under 194R is deductible in case of any other incentive given in cash or kind, sponsors trip for recipient and his/her family, provides free ticket for the event, gives medical sample free to medical practitioners and similar such instances.

6. Social media influencers are given products of the manufacturer to use and exhibit. TDS under section 194R is not applicable in case the products are returned to the Company after use but if the same is not returned and retained by the influencer then TDS is deductible in such cases

7. If the dealer conference is to educate the dealer on the product or benefit then TDS is not attracted however if the conference is in the nature of incentive or benefit to select dealers then TDS would be applicable

Value of benefit is calculated based on purchase price if the benefit or perquisite is bought before giving the benefit and in all other cases, based on fair market value. GST is not included for calculation of TDS under section 194R

Payment of TDS monthly by 7th of subsequent month and quarterly filing of TDS return is similar to the other sections of TDS. Form 26Q has included the reporting details of TDS under section 194R.

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February 2024