Section 194R- Tax on benefit or perquisites

Section 194R was introduced primarily to overcome the leakage of taxes as no one was furnishing the taxes on the benefits which were being provided. People were using this as a tool to discharge this performance obligation especially to their employees.

This particular section was introduced via Finance Act,2022 with effect from 1st July 2022 covering all the benefit or perquisites apart from the exceptions provided by a business or a profession to any a resident person. It not only covers benefit in the terms of money but also includes any other things which is converted into money or kind.

So, the payer shall deduct tax on any benefit or perquisites provided in a financial year which exceeds Rs 20,000 at the rate of 10%.

Provided that the provisions of this section shall not apply to a person being an individual or a HUF, whose total sales or turnover does not exceed 1 crore in case of business or 50 lakhs in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite was received.

?Payer shall release this benefit only when any one of the three options is fulfilled:

• Payer has collected TDS from the payee or,
• Payer himself pays TDS on his own on behalf of payee or,
• Payer insists the payee to make the payment of TDS on which own by way of advance tax and furnish the proof to the payer

Please note that, for the purpose of TDS u/s 194R, any benefit provided up-to 1st July 2022 shall not be considered as the section itself was introduced with effect from 1st July. However, for determining the ?limit of Rs 20,000, even the benefit provided prior to 1st July will be taken into consideration as we need to calculate the threshold on annual basis.

Applicability

1. Incentives provided in the forms of cash or kind.
2. Sponsorship for trips for such person or their relatives for achieving a target.
3. Providing free ticket of an event.
4. Free medicine samples to medical practitioners

• Free medical samples by one medical institutions (say A) to a medical practitioner (say Deepak) who is an employee of another medical institution (say B), then A will not deduct will TDS from Deepak but will deduct from B u/s 194R and correspondingly B will deduct TDS from Deepak under section 192 on the same benefit as perquisites.
• In above example, say Deepak is not an employee but an independent consultant of B, in that case, there are two options available:

- Either A shall deduct TDS from B u/s 194R and on the same benefit B shall deduct TDS u/s 194 R from Deepak Or

-A will shall deduct TDS u/s 194 R directly from Deepak as he is an individual professional.

However, TDS u/s 194R will not be applicable if the benefit is provided to government hospital not carrying out a business or profession.

5.?Benefit provided to social media influencers (Example Dolly Singh) for review of products

• If Dolly Singh returns the product back after promotion- TDS will not be applicable
• If Dolly singh retains the same- TDS u/s 194R will be applicable

6.?Food, Travelling Expenses, or accommodation provided by client to auditor (For Example, say Deepak & Co is an auditor)

• If the Invoice for food or accommodation is raised in the name of Deepak & Co., but is paid by the client, in this case, client shall deduct TDS u/s 194R on this transaction as this is a direct benefit to Deepak & Co.,
• Please note, if Invoice is in the name of client but was borne by Deepak & Co., which was later reimbursed by client, No TDS will be applicable as there is no benefit on this.
• Out of pocket expenses which is included in the audit fees itself on which TDS has already been deducted u/s 194J or 194C on the entire consideration, the Section 194R will not be applicable.

7.??Expenses on Dealer or business conferences will be covered under this section if:

• Expenses on Leisure trip or leisure component even if it is incidental to the event.
• Expenditures on Family members accompanying the person attending.
• Expenses on stay prior to the date or overstay beyond the date of such conference (Excluding One day prior or one day after the date of conference)

?However, Expenses on dealer or business conference for launch of new product or discussion of new product or for obtaining new order or teaching sales techniques to dealer, etc will not be covered under this section.

It is clarified by CBDT that, when the benefit provided to a group as a whole and the benefit attributable per person is not being identifiable, payer can exercise the benefit of not claiming this expense as business expense and he will not required to deduct TDS u/s 194R. Doing so, he will not be classified as assesse in default as well.

Following are few FAQs clarified by CBDT

1.?Do we need to check if this perquisite is taxable in the hands of payee?

• TDS is to be deducted irrespective of the fact that it is taxable or not in the hands of recipient. Since you are providing a benefit including a benefit in capital nature in the course of your business or profession, it should be deemed taxable.

2.?Should we need to deduct TDS on discounts or offers given to our customers?

• Cash discount, rebates or trade discounts, etc may be a kind of a benefit provided in the course of business, but it will not come under the purview of this section as this will be an impossible task for supplier to track TDS applicability in case of every customers.
• Please note, Buy one get two or similar schemes will also not come under the purview of this section.
• Also note that, TDS will be applicable in case of free samples provided to the customer.

3. Can recipient claim depreciation on the asset so received as benefit?

• Actual cost shall be Fair Market value on which he has paid taxes. Recipient can use such gifts for his business or profession and can claim depreciation on it.

4.?What should be the value of benefit?

• If purchased and provided as it is- Purchase value
• Provider has manufactured it- Price Charged to its customers for such items.
• Any other cases- Fair market value of benefit as on date.

Please note GST will not be included for the purpose of valuation for TDS.

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