1.
Transactions
covered: Any benefit or perquisite, whether convertible into money or not
2.
Rate
of TDS: 10%
3.
Threshold
for deduction: Value of benefit/perquisite should be more than Rs. 20,000
4.
Payee:
Only resident payees are covered u/s 194R.
5.
Who
are liable to deduct tax: Persons whose turnover in the business or profession is greater than Rs. 1 Crore or Rs. 50 Lakhs in the preceding previous year
6.
When
to deduct tax: At the time, when the benefit/perquisite is provided
7.
Intent behind the introduction of the provision
As per section 28(iv) of the Income tax 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
It has been noticed that as a business
promotion strategy, there is a tendency on businesses to pass on benefits to
their agents. Such benefits are taxable in the hands of the agents. In order to
track such transactions, I propose to provide for tax deduction by the person
giving benefits, if the aggregate value of such benefits exceeds Rs. 20,000 during
the financial year.
(Para 138 of FM’s speech, Budget
2022-23)
8.
Circular 12/2022- Guidelines for implementation of Section 194R
a.
Deductor
is under no obligation to check to whether the benefit provided is taxable as
business income for the recipient or not.
b.
TDS
shall be deducted even on benefits/perquisites provided in the nature of cash.
c.
TDS
shall be deducted even on capital assets provided as benefit/perquisite.
d.
TDS
need not be deducted on sales discount, cash discount and rebates.
e.
TDS
shall be deducted on free samples.
f.
Value of benefit/perquisites
i.
Generally,
value would be Fair market value of the perquisite
ii.
The
value of the perquisite shall exclude the GST component
g. Benefit/Perquisite given to social media influencers for product promotion
h.
Reimbursement of out-of-pocket expenses incurred by service provider
i. Let’s say, A provides consultancy service to B. A incurs travel expense in the course of business. If this travel expense is invoiced in the name of A and B reimburses the travel expense to A/pays the travel expense directly, B is liable to deduct TDS u/s 194R.
i. Expenditure incurred on dealers conference to educate dealers
i.
TDS
shall not be deducted if:
1.
Conference
is not in the nature of incentives/benefits to select dealers/customers who
have achieved particular targets
ii.
TDS
shall be deducted if:
1.
Expenditure
incurred in the nature of 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
j.
How shall tax be deducted in case the benefit/perquisite is in kind?
i.
Recipient
shall pay tax through advance tax challan.
ii.
Deductor
shall obtain a declaration along with a copy of advance tax challan.
iii.
In
the TDS return, the same shall be reported along with challan number
iv.
Form
26Q would carry the provisions for the same starting from this year
Alternatively,
i.
The
benefit provider may pay the tax on behalf the benefit recipient.
ii. The benefit provided shall include the tax
paid and tax shall be deducted accordingly. i.e., Grossing-up provisions shall
apply.
k.
For
the calculation of liability as to whether the threshold limit of Rs. 20,000/-
has been exceeded during the year or not, benefits provided since 01.04.2022
shall be taken into account.
