Section 194R: Tax Deducted at Source on Benefits or Perquisites provided to any resident individual by arising out of his Business or Profession has been applicable from 1st July, 2022.
Provision of this Section 194R says that any person who provides benefit or perquisite worth more than Rs 20,000 in a year to any resident Individual that arises from their business or profession must deduct tax at source at the rate of 10%. This benefit or perquisite must also fall under the definition of income under section 28(iv) of the Income Tax Act, 1961.
The perks, benefits, amenities, or facilities that a resident individual enjoys in the course of, or in the exercise of, his business or profession instead of the regular consideration payable to him, in monetary terms, in the course of such business or profession are those that are proposed to be covered by this new section 194R. These benefits or perquisites are likely in kind, or in a combination of cash or kind. According to section 28(iv) of the Income Tax Act, 1961 certain advantages or perquisites are taxable as business receipts.
Benefits or perquisites on which tax is required to be deducted
The guidelines provide the following examples of where the tax has be deducted under Section 194R:
- When a person provides monetary or in-kind incentives such as a television, car, computer, gold coin, mobile phone, and so on.
- When a person sponsors a trip for the recipient and his/her relatives upon meeting certain goals.
- When a person provides a free ticket to an event
- When a person provides free medicine samples to medical practitioners
Calculation of the threshold limit
Section 194R will be triggered only when the value of benefits and perks exceeds the limit of 20000 during the year (including this financial period i.e. 1 April2022 -31 March 2023),
Those perks and benefits that is delivered after July 1, 2022, should be subject to the tds deduction required by the aforementioned clause by the benefits provider.
How to deduct tax on benefits in kind?
If the benefit or perquisite is to be provided in kind, the deductor has to ensure that the recipient of such benefit pays advance tax on the value of such benefit. Alternatively, the benefits provider may pay TDS to the government under Section 194R (TDS also considered as part of the benefit).
Other circumstances explained
There are a few more examples given so that you can see how TDS can be used in other situations.
As long as the product is not returned, it is considered a benefit or perk for the manufacturer to give the social media influencer, who will use it to promote their product on social media.
If a customer or service recipient pays for any expenses incurred by a person in a business or a profession, that person is effectively receiving a benefit or perquisite from the customer/service recipient in the course of business/profession. A benefit or perquisite is not a benefit or perquisite if the business/service provider pays for the expenses and the customer/service recipient reimburses the same, provided that the invoice is obtained on behalf of the customer/service recipient.
Exceptions to Section 194R
- The guidelines show how TDS under Section 194R would not apply in a number of sales promotion situations.
- Customers can get discounts on sales, cash discounts, and rebates.
- When some units of a product are given away for free when you buy a certain number of other units of the same product (for example, “buy one, get one” or “BOGO”).
- However, the above exception about not having to pay tax does not apply to free samples.
- It also says that Section 194R doesn’t apply if the benefit or perk is given to a government entity that isn’t a business or profession, like a government hospital, etc., that isn’t making money from it.
• Also, the costs of the conferences that teach the dealer or business about the product launch, sales techniques, or other similar things are not a perk or benefit. But these conferences can’t be like rewards or bonuses for the dealers or customers who reach certain goals. Hence, from now onwards, the taxpayers need to identify transactions which are in the nature of benefits and perquisites and comply with the new TDS provision.
