Deduction of Tax on Benefits or Perquisites in Business or Profession u/s. 194R of Income Tax Act 1961

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The finance bill has proposed to add Section 194R to the Income Tax Act 1961. This section has been inserted with a view to bring into tax those benefits or perquisite that a person receives during the course of business or profession which is not disclosed in the ITR. The provision will be made effective from 1st July, 2022. Recently Central Board of Direct Taxes (CBDT) has issued cirulcar No.12 of 2022 dated 16th June, 2022 with guidelines to address/remove difficulties in implementation of section 194(R) of the Income Tax Act, 1961. This blog highlights the key aspects of the provisions of section 194R along with clarifications provided in circular issued by CBDT

WHAT ARE BENEFITS/PERQUISITE?

As the definition is not described under section 194R of benefits/perquisite,

“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages, under section 17(2) of Income tax Act

Benefits/ perquisite means any benefits/freebies provided to a person in addition to actual course of transaction.

 E.g. 

  • rent free accommodation
  • Perquisite arising out of supply of gas, electric energy or water:

WHO WILL BE RESPONSIBLE TO DEDUCT THE TDS?

  • The person providing benefits/ services to the resident whether monetary or non-monetary arising in course of transaction of business or professional services, before providing the benefits to the residents ensure that the tax is deducted in respect of the benefits provided @10% of value or aggregate of value of such benefits

WHO ARE NOT RESPONSIBLE TO DEDUCT TDS u/s. 194R ?

  • HUF/individual whose sales, gross turnover or receipt less than equal to 1crore (or) 50 lakh in case of profession Immediately preceding the financial year, the benefits are provided
  • Any benefit to non-resident will not fall under 194R

CALCULATION OF THRESHOLD LIMIT FOR DEDUCTION:

  • The threshold limit is 20,000 for triggering TDS, and shall be counted from 1-04-22.
  • If the benefits provided exceed 20,000 in the financial 2022-23 are subject 194R. the benefits provided before 30-06-22 are not to be considered under tax deduction at 194R.

CHECK POINTS: 

WHETHER THE BENEFITS IS TAXABLE UNDER ANY OTHER (SECTION 28)?

  •      Section 28 includes profits and gains of business and profession
  •      Section 194R obligates the person responsible for providing benefits/ perquisite to resident should deduct the tax at source, there is no requirement to check whether it is applicable or taxable under any other section

WHETHER IS IT REQUIRED THAT BENEFITS SHOULD BE IN KIND?

  • 194R required to deduct the tax at source whether the benefits are in cash or kind or partly in cash or partly in kind, regardless of the nature.
  •  Rent allowance given over and above the salary (cash benefits)
  •  Use of hotel, boarding and lodging facilities (non-cash benefits)

WHETHER CAPITAL ASSET INCLUDED AS PREQUISITE?

  •   Whatever the nature of the asset may be, if the asset like car, land is given as perquisite /benefits should be considered under whelm of 194R
  •   The tax on capital asset being given as benefits should be deducted at source.

WHETHER SALES DISCOUNT, CASH DISCOUNT, AND REBATES ARE BENEFITS OR PREQUISITE?

  •   No tax is deducted at source in case of sales discount, cash discount, and rebates allowed to customer.
  •   No tax is deducted at source in case if benefit/perquisite given to government entity not carrying on business or profession.

HOW VALUATION OF BENEFITS / PREQUISITE SHOULD BE DONE?

  •    Valuation should be fair market value
  •    GST should be excluded when valuing the benefits /perquisite
EXCEPTIONS 
PURCHASED-BENEFITS VALUE = BENEFITS 
MANAFACTURED- BENEFITS VALUE= SELLING PRICE CHARGED TO THE CUSTOMER

WHETHER TDS APPLICABLE ON BENEFITS GIVEN TO SOCIAL MEDIA INFLUENC

  It depends on case to case as stated below :

IF THE SOCIAL MEDIA INFLUENCER:
RETAINS THE PRODUCTTDS SHOULD BE DEDUCTED
RETURNS THE PRODUCTTDS WILL NOT BE DEDUCTED

WHETHER APPLICABLE ON REMBIRUSMENT OF OUT-OF-POCKET EXPENSES INCURRED BY SERVICE PROVIDER?

  •   If any expenses incurred by services provider are borne by service beneficiary it will be treated as benefits/perquisite
  •   If the invoice has been obtained in name of service recipient and then the reimbursement made to service recipient will not be considered as benefit/perquisite for the purposes of section 194R.

WHETHER APPLICABLE ON EXPENDITURE INCURRED ON DEALER CONFERENCE TO EDUCATE THE DEALER? – BENEFITS/REQUISITE

  • TDS u/s. 194R shall be deducted in following case:
  • Expense attributable to leisure trip, even if incidental to dealer/business conference
  • Expenses incurred for additional member accompanying the person attending the conference
  •  Expense on participants of dealer/ business conference for days which are on account of prior stay or overstay beyond the dates of such conference

HOW SHALL THE TAX BE DEDUCTED WHEN THE BENEFITS ARE PAID IN KIND AND CASH IS NOT SUFFICIENT TO PAY TDS?

  • Recipient should pay the taxes through advance tax challan
  • Deductor should obtain declaration along with advance challan 
  • In TDS return it should reported with challan number
  • Form 26Q has been included to report such transaction

Alternatively:

  •  Benefit provider may pay tax on behalf of service recipient
  •  The benefit provided should include tax paid and shall be deducted accordingly:

 

Limitation: The purpose of this article is for knowledge sharing purpose. Views expressed in this note are personal views of the author. The same should not be construed as professional advise

 

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