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Section 194R TDS on providing benefits or perquisites

Hello professionals,

So a new section is introduced i.e. section 194R, so let’s decode this section by a simple Q&A.

Question-1: Who is responsible to deduct TDS u/s 194R?

Answer-Any person who provides any benefit or perquisite to a resident where value or aggregate value of such benefit or perquisite exceeds Rs.20,000 during the financial year. Moreover, the benefit or perquisites should be arises during the course of business or profession only. It means if it is given as personal purpose this provision is not applicable.

Note- This provision is not applicable to an individual/HUF whose total sales, Gross receipts or turnover does not exceeds Rs.1 Crore in case of business or Rs.50 Lakhs in case of profession during the financial year immediately preceding the financial year in which such benefit/perquisite is provided.

Question-2: At what percentage TDS needs to be deducted?

Answer- TDS needs to be deducted @10% of value or aggregate value of such benefit or perquisite.

Question-3: Can the benefit or perquisite is in cash or in kind?

Answer- The benefit or perquisite can be in cash or in kind or partly in cash or partly in kind also. So, Benefit or perquisite can be either in cash or in kind like Land, Car, Gifts, Freebies, and Shares etc.

Question-4: Whether sales discount, Cash discount and rebates are benefit or perquisite?

Answer- These are also benefits related to sales/purchase, But to reduce the burden on sellers, TDS u/s 194R is not applicable on cash discounts, sales discount and rebates.

Question-5: Give some examples on which TDS u/s 194R needs to be deducted

Answer-

  • When a person gives incentives in cash or kind such as car, TV, Computers, gold coin, mobile phone etc.
  • When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets
  • When a person provides free ticket for an event
  • When a person gives medicine samples free to medical practitioners.

Note- These benefits/perquisites may be used by owner/director/employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or profession.

Question-6: Explain TDS on free medicine samples provided by company to a doctor?

Answer-

  • If the doctor is an employee of the hospital and Company provides a free medical sample to the doctor then TDS needs to be deducted by the Company in the hands of hospital u/s 194R and subsequently it will be taxable in the hands of hospital, Then again hospital being an employer needs to deduct TDS u/s 194R in the hands of the doctor and can claim such benefit or perquisite as salary expenditure and also the hospital can claim TDS deducted by the company by filing the income tax returns. Eventually, the benefit/perquisite will be taxable in the hands of the doctor.
  • If the doctor is a consultant, then the original benefit provider i.e. the company may directly deduct TDS in the hands of the consultant.

Note- The provision of section 194R is not applicable if the benefit or perquisite is provided to the Government entity like Government hospital not carrying on business or profession.

Question-7: Is TDS needs to be deducted on free product given by the manufacturing companies to the social media influencer?

Answer- If the benefit or perquisite in the form of car, mobile, outfit, cosmetics etc. is given to the social media influencer by the manufacturing company of that product to make audio/video to speak about that product in social media then TDS u/s 194R will be deducted by the company if the product is retained by the social media influencer. If product is returned by the influencer then there is no requirement to deduct TDS.

Question-8: Explain TDS on Reimbursement expenses paid by the service recipient?

Answer- If service provider incurred certain expenses while providing the service which is being reimbursed by the service recipient, Then, It will be considered as a benefit/ Perquisite paid by the service recipient to the service provider and TDS needs to be deducted by the service recipient if the limit exceeds.

Question-9: Explain TDS on Dealer conference expenditures?

Answer- The Expenditure incurred on the dealer/ Business conference would not be considered as benefit/perquisite for the purpose of TDS u/s 194R where dealer/business conference is held with the prime object to educate dealers/customers about any of the following aspects:

1. New product being launched

2. Discussion as to how the product is better than others

3. Obtaining orders from dealers/customers

4. Teaching sales techniques to dealers/customers

5. Addressing queries of the dealers/customers

6. Reconciliation of accounts with dealers/customers

However, in the following cases the expenditure would be considered as benefit/perquisite for the purpose of TDS u/s 194R:

1. Expense attributable to leisure trip or leisure component, Even if it is incidental to the dealer/ business conference.

2. Expenditure incurred for family members accompanying the person attending dealer/business conference.

3. Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

Question-10: How is the valuation of benefit/perquisite required to be carried out?

Answer- The valuation of benefit/perquisite will be on the basis of the fair market value except in following cases:

1. The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In such case, the value will be the purchase price.

2. The benefit/perquisite provider manufactures such items, then value will be the price it charges from its customers for such items.

Note-GST will not be included in the valuation.

Question-11: Explain the process of deducting TDS u/s 194R?

Answer- The provider of the benefit/perquisite will deduct TDS @ 10% on the value of the benefit/perquisite and then deposit the same with the government on or before 7th of next month from the month on which TDS was deducted. Moreover, The provider shall report the TDS deducted u/s 194R in the TDS return in form 26Q for the respective quarter. For the recipient, He needs to file income tax return to claim refund of the TDS deducted.

TDS us 194R i.e. TDS on providing benefit-perquisites

Question-12: Explain how threshold of Rs.20,000 will be calculated?

Answer- The section 194R will be applicable from 1st July 2022, hence if the benefit/perquisite provided before 1st July 2022 will not be considered and no TDS needs to be deducted. But for threshold calculation of Rs.20,000 during the financial year, The value of benefit/perquisite for the  period April’2022-June’2022 will also needs to be considered.

Question-13: Practically at what stage TDS needs to be deducted u/s 194R?

Answer- In the law, It is mentioned that TDS u/s 194R needs to be deducted at the time of providing benefits/perquisites. There is no specific mention of the timeline to deduct TDS like for other TDS sections i.e. payment is due or Actual payment is made whichever is earlier. So, In this section we have to apply the common sense on when to deduct TDS u/s 194R.Lets explain this question with some examples.

  • M Ltd provided a car to a consultant on achieving certain targets, So M Ltd shall deduct TDS u/s 194R on the value of such car at the time when car is actually handed over to such consultant.
  • T Ltd agrees to provide a foreign tour to its dealers who achieves the target, So T Ltd will deduct TDS u/s 194R when tickets of such foreign tour is handed over to the dealers.
  • S Cosmetics provided free samples to Mrs. X a social media influencer to record a video about the product on Instagram and Facebook and the product is retained by Mrs. X. In this case, S cosmetics shall deduct TDS u/s 194R at the time of delivering such product to Mrs. X.

Important Note

TDS u/s 194R shall not apply in case of supplying of free goods under schemes like buy one get one free.

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