194R TDS on benefit or perquisite in respect of business or profession

By: Mr. Shashank Mundle - 20th June, 2022

The Central Board of Direct Taxes under the Income Tax department has notified fresh guidelines in connection with the applicability of a new TDS provision related to receiving benefits in a business or profession.

The CBDT said that these perquisites may either be in cash, in kind or partly in both of these two means.

Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961, which was notified during the Budget speech of finance minister Nirmala Sitharaman earlier this year.

“The new section mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source at 10 per cent of the value or aggregate of value of such benefit or perquisite, before providing such benefit or perquisite,” said the CBDT in its notice dated June 16, Thursday.

The new provision will come into effect on July 1, 2022.

The CBDT also said that the taxpayer 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 Finance Act 2022. “There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable,” the notice also said.

The guidelines also mentioned that Section 194R shall apply to seller giving incentives, which include items in cash or kind. Some of these are car, TV, computers, gold coin, mobile phones, sponsored trips to family, free tickets and free medical samples.

The CBDT further said that the Section 194R will be applicable on distribution of free samples to by a company to a doctor who is an employee of a hospital. The tax will be deducted by the company in the hands of hospital as the benefit/perquisite is provided to the doctor on account of him being the employee of the hospital. “The hospital may subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under section 17 of the Act and deduct tax under section 192 of the Act. In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital,” said the CBDT.

The CBDT has also provided relaxations on sales discount, cash discount and rebates given to customers from the ambit of the new Section 194R as the inclusion would put sellers into difficulties.

This deduction is not required to be made, if the value or aggregate of value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed Rs 20,000, the CBDT clarified.

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