TDS on perquisites and benefits: Section 194R

TDS on perquisites and benefits: Section 194R

Introduction

?This Section had been introduced by the Finance Act, 2022 and will be effective from 1st July 2022.

• ?Under this section, a person who is responsible for providing any benefit or perquisite to a resident must deduct tax at source @ 10% of the value or aggregate of value of such benefit or perquisite, before providing such benefit or perquisites.
• ?The benefit/perquisite may be in cash as well as in-kind, but should be given to any resident person either for carrying out of business or profession. Some common examples have been stated as tour packages, Expensive Gifts, and Incentives.
• ?The threshold limit for deduction of TDS under section 194R shall be more than INR 20,000 during the financial year.
• ?The liability for deduction will not arise if the person is an Individual/Hindu undivided family (HUF) deductor, and is covered under Section 44AB, Tax Audit.

?Some Important Clarification on the Guidelines Issued:-

?1.????Benefit/Perquisite may be in kind or cash:- It is not mandatory that the benefit or perquisite shall be in kind. Hence, the liability for tax deduction shall arise in both cases i.e., benefit/perquisite paid in cash or kind.

2.????Benefit/Perquisite in the form of capital assets:- The capital assets are also covered under the scope of 194R. The nature of assets does not matter. Hence, the liability for tax deduction will arise in the hands of the payer, whatever is the nature of benefit/perquisite.

3.????Sales discount, cash discount, and rebate as benefit or perquisite:- These types of discounts are also the benefits to customers. It is clarified by CBDT that Section194R will not be applicable on the sales discount, cash discounts given to the customers. Further, it is clarified that the discount or rebate other than the above will attract the application of tax liability u/s 194R. Some examples are stated as Incentive on Completion of target viz., (i) Free tickets, (ii) TV, Gold coin, (iii) Sponsoring a Trip.

?4.????Free samples as Benefit or perquisite:- Free samples given to the payee are also covered under the definition of benefit or perquisite and will attract the liability under Section 194R.

?CBDT has clarified how ?the tax will be deducted in different situations stated below:

• If the free samples are used by the director, owner, or employee of the recipient entity or their relative in their individual capacity, the tax shall be deducted by the payer in the name of the recipient entity, since the use by the director, owner, employee or their relative is by virtue of their relation.
• ?If the free samples are given to a doctor working as an employee in a hospital, the payer shall deduct the TDS under Section 194R in the name of the hospital & the hospital will treat the same as benefit/perquisite provided to the employee under Section 17(2) and deduct tax under Section 192.
• ?If the free samples are given to a doctor working as a consultant in a hospital, then the original payer will deduct the tax in the name of the hospital under Section 194R & later the hospital will deduct the tax in name of the consultant under Section 194R.

5.????Valuation of the Benefit/Perquisite:- Benefit or perquisite will be valued at the fair market value except in the below-mentioned cases:

• ?If the payer has purchased the benefit/perquisite, then the purchase price shall be the value of Benefit/Perquisite.
• If the payer has manufactured the benefit/perquisite, then the price that is charged by customers shall be the value of benefit/perquisite.

?6.????Products given to Social Media Influencers:- If the product has been retained by influencers, then the manufacturing company or the payer shall deduct the TDS under Section 194R.

?7.????Reimbursement of Out-of-Pocket Expenses:- Ordinarily, the expenditure incurred by the consultant is part of his business expenditure, which is deductible against the income received from the client. If the invoice for expenses is paid by the consultant and is not in the name of the client and the client reimburses the same, then this transaction will attract the applicability of Section 194R.

?8.????Insufficient cash component in respect of TDS:- In case benefit/perquisites are in kind, the payee or the recipient of benefit/perquisite will deposit the TDS under Section 194R at the rate of 10% on the value of benefit/perquisite.

9.????Computation of Threshold Limit:- ?The section will be applicable from 1st July 2022, the payer shall deduct the TDS for the benefit/perquisite provided by him after 1st July 2022. For computing the threshold limit, the value or aggregate value of the benefit/perquisite will be counted from 1st April 2022. CBDT clarifies that there shall be no requirement to deduct TDS under section 194R for the benefit/perquisite provided on or before 30th June 2022.

For details, please refer to the CBDT Circular No. 12 of 2022 dated 16th June 2022.