The Finance Act, 2022 has introduced the new section 194R
to the Income Tax Act, 1961.
This Section requires
any person (resident or non-resident) carrying on business or profession providing
any monetary or non-monetary benefits or perquisites to residents to deduct TDS.
The rate of TDS is 10% of the value or aggregate value of such benefits or perquisites
if the value thereof exceeds Rs. 20,000 per annum.
Furthermore,
payers of benefits or perquisites who are individuals or HUFs are exempt from
complying with the provisions of this section if their Turnover is less than
Rs. One Crore in the case of business and Rs. Fifty Lakhs in the case of the profession
during the preceding financial year.
For ease of
reference, this section can be divided into five parts as listed below.
|
Section
194R Applicable for |
Providing
any benefits or perquisites monetary or otherwise. |
|
Threshold
limit |
Rs.
20,000/- per annum |
|
Payer of
benefits or perquisites |
Residents
/ non-residents |
|
Receiver of
benefits or perquisites |
Resident |
|
Relaxation
to the payers of benefits or perquisites being Individuals and HUFs carrying
on |
Business: Turnover less than Rs. 1 Crore. Profession: Gross Receipt less than Rs. 50 Lakhs. During the
preceding financial year. |
Examples of transactions liable for TDS
u/s 194R (Not exhaustive)
1.
Providing free
samples to medical practitioners
2.
Payments to social
media influencers
3.
Reimbursement of
out-of-pocket expenses
4.
Free insurance coverage
to an insurance agent and to his family
5.
Coupons in the
form of discount coupons for future purchases
This section is effective from 1st July
2022. So, all transactions on or after 1st July 2022 would attract
TDS at the rate of 10%. Though the requirement to do the TDS arises only from 1st
July, the threshold limit of Rupees 20,000/- has to be computed with effect
from 1st April 2022.
(Amount in Rupees)
|
PARTICULARS |
CASE I |
CASE II |
CASE III |
|
Value of benefits
provided till 30th June 2022 |
15,000 |
25,000 |
30,000 |
|
Value of
benefits provided on 1st July 2022 |
7,500 |
10,000 |
25,000 |
|
TDS |
10% on
Rs. 2,500 |
10% on
Rs. 10,000 |
10% on
Rs. 25,000 |
BENEFITS OR PERQUISITES IN KIND
The benefits or perquisites
paid may be monetary or non-monetary in nature. If the benefits are in the nature
of kind, the payer ensures that the recipient has paid the applicable taxes
thereon before providing them.
Example: A Company gifts a Car worth Rupees 10 Lakhs to its
Consultant. Here Company should make sure that the consultant has paid the tax
thereon.
The consultant has
to pay the tax in the form of advance tax. The Company has to get a declaration
from the consultant saying that the applicable taxes are discharged along with the
copy of the advance tax paid challan. The details of advance tax paid challan have
to be reported in form 26Q.
Alternatively, the
company may choose to pay the requisite TDS on behalf of the recipient. In such
a case, the amount of TDS paid on behalf of the recipient is also to be shown
as a benefit under section 194R and the same shall be reported in form 26Q.
VALUE OF BENEFITS OR PERQUISITES IN KIND
The Value of the benefit
in the form of the kind is determined with reference to the Fair Market value of
such perquisites. The purchase price shall also be considered when they are purchased
by the provider. When the provider himself is manufacturing the perquisites
given, the price he charges to the outside customers shall be taken as the
value of the benefit provided. In all cases, the GST component has to be
excluded to calculate the TDS.
VALUE OF BENEFITS OR PERQUISITES CAPITAL IN NATURE
The requirement to
do TDS arises irrespective of whether such receipts are taxable in the hands of
the recipient or not. TDS also arises even if such a receipt is a capital
receipt in the hands of the recipient.
Example: Gift of Car by a Company to its Marketing Agent though
a capital receipt in the hands of Marketing agent, TDS is required to be done.
TDS IN CASE OF SALES DISCOUNTS, CASH DISCOUNTS AND REBATES
Though the Sales
discounts, cash discounts, and rebates allowed to customers are also the benefits
within the meaning of section 194R, these transactions are specifically exempted
from section 194R.
REIMBURSEMENT OF OUT-OF-POCKET EXPENSES
It may so happen
that the service receiver may reimburse the out-of-pocket expenses of the service
provider. We need to see the principle of pure agent here. The reimbursement of
out-of-pocket expenses is a benefit within the meaning of section 194R. But TDS
is not required to be deducted on reimbursement of out-of-pocket expenses when
the bills are in the name of the service receiver.
PAYMENTS TO SOCIAL MEDIA INFLUENCERS
Many times, businessmen
provide their products to social media influencers to promote them on their social
media pages. It may so happen that such products are retained by the influencers
themselves. In such cases section, 194R is attracted. TDS is not required to be
deducted if such products are returned to businessmen.
APPLICABILITY TO GOVERNMENT ENTITIES
The provisions of
section 194R are not applicable to benefits or perquisites provided to a government
entity not carrying on business or profession.
CA Ramakrishna Sanjay
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