A New Section 194R has been introduced through The Finance Act, 2022 which deals with the deduction of tax at source on benefit or perquisite provided in respect of business or profession. So, Today let’s discuss everything about this section-
Section 28(iv) of the Income Tax Act, 1961 provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to tax under the head “Profits and gains of business or profession” in the hands of the recipient.
There have been many instances where these recipients do not disclose the receipt of such benefits in their return of income and the tracking of such benefits will become very difficult for the Government. In order to keep a check on these transactions, Central Government has introduced this section.
This section will have the effect from 1st July 2022. Thus, Tax at source is not deductible on the benefit or perquisite which has been provided on or before 30th June 2022.
Section 194R of Income-tax Act, 1961: Any person responsible for providing any benefit or perquisite to a resident, whether convertible into money or not, is required to deduct the tax at source at the rate of 10% of the value or aggregate of the value of such benefits or perquisites.
- Here, “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof. For Example, a company arranges foreign tours for its agents who achieve specific targets. The responsibility to deduct the tax at source is of the company but not of the tour operator.
- The tax shall be deductible only by a resident providing any benefit or perquisite to another resident.
- The benefits or perquisites covered under this section are those that are not covered under section 192 of the Income Tax Act, 1961 which will be received wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite.
- The person responsible for providing such benefit or perquisite shall deduct the tax at source before releasing the benefit or perquisite to the resident recipient.
- No TDS is required to be deducted if the aggregate value of the benefit or perquisite provided or likely to be provided during the financial year does not exceed INR 20,000. The aggregate limit of INR 20,000 shall be checked for the financial year as a whole and not just the period after 1st July 2022.
- No TDS is required to be deducted by an Individual or HUF whose total sales, gross receipts or turnover does not exceed INR 1 crore in case of business or INR 50 lakh in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite is provided.
- Tax at source is required to be deducted at the rate of 10% on the value or aggregate of the value of such benefits or perquisites. Tax has to be deducted on the entire value of benefit or perquisite and not just on the amount exceeding INR 20,000.
- Benefits or perquisites which are arising out of a business relationship will not be liable for deduction of Tax at Source. The existence of a business relationship is an essential condition for the applicability of this section to the transaction.
- TDS under this section is not applicable for issuing credit notes for post-sale discounts, since those are ordinary selling expenditure and does not constitute any benefit or perquisite.
- The provisions of section 194R are not applicable if the benefit or perquisite is being provided to a Government entity.
Other compliances to be taken care of-
- The deductor should deposit the tax so deducted to the Central Government on or before the 7th day of the following month.
- The deductor should file quarterly TDS returns in Form 26Q on or before the due dates mentioned in the Act.
- The deductor will have to issue certificate of tax deducted in Form 16A to the deductees.
How to deduct tax from benefit or perquisite?
The liability to deduct TDS can be discharged in any of the following ways:
- Payee himself pays tax and gives challan to the payer.
- Payee gives cash to the payer to meet TDS liability.
- Payer by grossing up and paying tax out of his pocket.
- Debiting the amount of TDS to the account of the payee if it has a credit balance.
Computation of Value of Benefit or Perquisite:
The CBDT has clarified that the valuation would be based on the fair market value of the benefit or perquisite except in the following cases:-
- The benefit or perquisite provider has purchased the benefit or perquisite before providing it to the recipient. In that case, the purchase price shall be the value for such benefit or perquisite.
- The benefit or perquisite provider manufactures such items given as benefit or perquisite, then the price that it charges to its customers for such items shall be the value for such benefit or perquisite.
Section 194R is applicable if the above-discussed criteria are satisfied irrespective of such benefit or perquisite is taxable in the hands of the recipient.
This section is mainly targeted to keep an eye on the revenue leakage caused by not reporting the income by the recipients in the form of freebies received by many professionals like Doctors, Social media influencers etc. during the course of their business.
CBDT has clarified that if the social media influencer returned the product like Car, Mobile, Outfit, Cosmetics, etc. to the entity after using it for rendering his services, i.e., social media influence, then it will not be treated as a benefit or perquisite for the purposes of section 194R. However, if the product is retained by the social media influencer then it will be in the nature of benefit or perquisite, and tax is required to be deducted accordingly under section 194R.
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Hemanth Uppala
CA Finalist
Content Writer | TAX DESTINATION
