A new section 194R- TDS on benefits or perquisites provided has been introduced in the Finance Act, 2022. Section 194R is applicable with effect from July 01, 2022.
Some important things about Section 194R
- Its Aim:
Earlier companies/ perquisite providers would provide perquisites and/or benefits in either cash or kind to their distributors, channel partners, and dealers and claim the same expenses as business-related expenses under Section 37 of the Income-tax Act, 1961. The prerequisite receiver on the other hand, never disclosed the benefit as an income while filing returns. This led to tax evasion at the hands of entities in business or profession. Hence, this section has been inserted to widen the tax base and reduce any possibilities of tax evasion.
- Applicability and tax rates:
Section- 194R applies to any person (a resident or a non-resident) providing benefits or perquisites to a resident person, either in cash or kind or partly in cash or partly in kind.
TDS is to be charged @ 10% only when the value of the benefits and perquisites exceeds Rs. 20,000 during the financial year to one perquisite receiver. The tax has to be deducted before providing the benefits or perquisites.
Section 194R is not applicable to:
- Individual/ Hindu Undivided Family whose total sales/ gross receipts/ gross turnover
do not exceed Rs. 1 crore
– Profession whose total sales/ gross receipts/ gross turnover does not exceed
Rs. 50 lakhs
As the section is applicable from July 01, 2022, any perquisites or benefits provided earlier would not be subjected to TDS under Sec-194R.
- Benefits of perquisites covered:
Any benefits or perquisites provided in the form of cash, kind, or both (E.g., television, car, computers, mobiles, sponsored trips, free travel tickets, gold/ silver coins, medical samples to practitioners, etc.)
Capital assets provided as benefits or perquisites are also covered under this section.
CBDT has provided a non-exhaustive but illustrative list of all the items that are covered as benefits and perquisites under Sec- 194R.
- Computation of the value of benefits or perquisites
The value of the benefit shall be computed as below:
- If the provider of benefit has purchased the benefit from the market, the purchase price of the benefit or perquisite
- If the benefit or perquisite is manufactured by the provider, then the selling price the provider would charge its customers excluding GST.
- Who is not a prerequisite receiver?
TDS under 194R is not to be deducted if perquisites and benefits are provided in the following cases:
- In the case of the employer-employee relationship
- The recipient is a non–resident Indian
- Customers who do not involve in the business/ profession
- There is no relation between the benefits to the business/ profession
- Sales discounts, cash discounts, and rebates given to a customer
- Free items are provided in schemes like “buy more get more” or “buy one, get another free”
- Government entities e.g., Government hospitals, and schools, do not carry business/profession
- Checking the taxability:
The tax deductor is not obliged to check the taxability value of the benefits in the hands of the recipient before deducting the TDS. Hence, TDS has to be deducted @ 10% if the value of the benefit or perquisite exceeds the threshold amount of Rs. 20,000.
- Treatment of benefits or perquisites in specified cases:
- Products were given to social media influencers for an act of publicity:
Any product given to the social media influencer for publicity, if the said product is returned to the provider after the publicity stunt, it is not considered as a benefit or perquisite and not subjected to section-194R.
However, if the product is not returned to the provider, then section 194R is attracted and TDS shall be deducted by the provider.
- Reimbursement of any out-of-pocket expenses:
Any expenses that are reimbursed to a person but invoiced in the name of the same person are not considered a benefit and hence it is not taxable under 194R.
However, reimbursement of expenses to another person to whom the invoice is not directed is liable to attract TDS under 194R.
- Expenditure incurred for organizing any business- dealer meetings/ conferences:
Expenditure incurred in case of any business or dealer conferences that are used as a platform to-
- educate certain people about the use of the new product
- reconcile accounts and records with dealers
- teaching sales techniques to dealers/ business partners or others
- meetings about improving product/ service efficiency, etc. are not considered as
benefits that would attract section 194R.
However, the following expenses incurred during these conferences would be charged to TDS under 194R;
- Any leisure component added in the trip for dealers or others
- Expenditure incurred towards the family members accompanying the dealers/ business partners or others
- Expenditure incurred for prior conference stay or overstay after the conference dates by the dealers/ business partners or others
Happy to help:
Section 194R has been inserted in the Finance Act, to steer clear of any acts by business entities that lead to evasion of tax. If you are in a business that provides benefits or perquisites in order to grow your business but cannot account for the same, then Diligen is at your service.
Diligen has a team of competent and experienced tax consultants and accounting professionals who can help clients understand the provisions of section 194R. Diligen is the best in the industry to help you manage accounts and carefully account for the TDS deducted so that there is no defaulting, which may lead to income tax fines, penalties, and notices.