Income Tax Act as amended by Finance Act 2022, a new TDS section i.e., Section 194 R – Deduction of tax on benefit or perquisite in respect of business or profession was introduced. This article includes What is Section 194R, Applicability of this Section, threshold limit, TDS rate, Deductor and Deductee calculation of TDS amount, challenges & solutions of implementing this section.
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What is Section 194R – Deduction of tax on benefit or perquisite?
A new TDS section introduced by Finance Act 2022 which requires any person responsible for providing to a resident, any benefit or perquisite arising from business or the exercise of a profession shall before providing such benefit or perquisite 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 exceeds 20,000 in a year.
| Key Extracts | Details |
|---|---|
| Deductor | Any person (Resident/Non-Resident), Individual/HUF whose turnover from business exceeds 1 crore in previous financial year or professional receipts exceeds 50 lakhs in previous financial year. |
| Deductee | Resident Person only |
| Rate of TDS | 10% |
| Threshold | 20,000 in a financial year |
| Type of benefit or perquisites on which this TDS provision applies | Benefit or Perquisites must arise out of Business or Profession. Benefits or perquisites can be in cash or kind or partly cash or partly kind. Benefits of perquisite under Salary Head not be covered here. Notional Benefits not covered. |
Applicability of Section 194 R – Deduction of tax on benefit or perquisite
The section will be applicable from 01 July, 2022. The limit of 20,000 will be seen for entire financial year beginning from 01 Apr,2022 to 31 Mar,2023. However, no TDS to be deducted for the months of Apr’22, May’22 and Jun’22.
| Case 1 | Value of Benefit is as follows Apr’22 – 10,000 May’22 – 10000 & July 5,000 | TDS@10% should be deducted on Benefit Value of 5,000. |
| Case 2 | Value of Benefit is as follows Apr’22 – 10,000 May’22 – 5000 & July 4,000 | No TDS as aggregate value is 19,000 which does not exceed 20,000 threshold limits |
| Case 3 | Value of Benefit is as follows Apr’22 – 10,000 May’22 – 20000 & July & following months – 0 | No TDS is required to be deducted as the section is applicable from 01 Jul, 2022. |
Guideline for removal of difficulty of Section 194 R – Deduction of tax on benefit or perquisite
Circular No 12 of 2022 dated 16 June, 2022, Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income tax Act, 1961 was issued. The key point are:-
- 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 of the recipient under clause (iv) of section 28 of the Act or any other section like section 41(1) etc.
- Tax under section 194R of the Act is required to be deducted whether the benefit or perquisite is in cash or in kind
- Assessee should deduct tax under section 194R of the Act even if benefit or perquisite is in the form of capital asset.
- No tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.
- Tax to be deducted on Free Samples provided.
- GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.
- If the product is retained by a social media influencer after he promotes the product then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act.
- Reimbursement of out-of-pocket expense incurred by service provider in the course of rendering service is benefit/perquisite will not be liable to TDS if the invoice is in name of service receiver and the same is paid by service provider on behalf of receiver.
- TDS to be deducted on
- Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference.
- Expenditure incurred for family members accompanying the person attending dealer business conference
- Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
All the circular and Act can be viewed from CBDT website. Refer link >> https://incometaxindia.gov.in/Pages/default.aspx
Valuation of benefit or perquisite as per Section 194R – Deduction of tax on benefit or perquisite
The valuation would be based on fair market value of the benefit or perquisite except in following cases:-
- The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. [n that case the purchase price shall be the value for such benefit/perquisite.
- The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.
Challenges and potential solutions in implementing Section 194 R – Deduction of tax on benefit or perquisite
| Challenge | Potential Solution |
|---|---|
| If benefit or perquisite is in kind or partly cash and partly kind and cash portion is not sufficient to meet the TDS requirement | Benefit provider can obtain a copy of advance tax payment challan by recipient and report the same in form 26Q |
| If recipient refuses to deposit advance tax | Benefit provider should deposit the amount on behalf of receiver and while making the calculation of TDS he will have to gross up the value of benefit by considering the same equivalent to 90%. This way even the TDS paid by him will become benefit to service provider. |
| Definition of Benefit or perquisite not defined in Income Tax Act or General Clause Act | As per rules of interpretation, since definition of Benefit or perquisite is not mentioned in statute, we will have to follow the understanding of benefit or perquisite in market parlance. |
Need Expert Assistance for Deduction of tax on benefit or perquisite as per 194R or any other section, payment of TDS and return filling of TDS in Udaipur and Rajasthan
For expert assistance for Deduction of tax on benefit or perquisite as per 194 R or any other section, payment of TDS and return filling of TDS, in Udaipur and Rajasthan, reach our professionals at Tax Ledger Advisor.
For detailed understanding of this section, watch this video from our expert.
