All About Section 194R | Section 194R क्या है | 194R क्यों महत्वपूर्ण है

Section -194R
TDS @ 10% on benefits or perquisites arising out of business or Profession
“Main Reason to Introduction is, to track the undeclared income.”

Applicability

Sec-194R is going to applicable from 01st July 2022

Need to Imposition of Section 194R

It is a Basic Income Tax Rule that One’s Expenditure, should be another’s Income.

Income tax department observed that Companies are regularly claiming expenses of business promotion by providing various benefits/ perquisites to its business dealers U/s 37 of the Act, But majority of dealers does not declares the said benefits/ perquisites under its business income, as required U/s 28 clause (iv) of Act.

So, to overcome this tax evasion, there were need of a tool to track the income and to bring it into tax channels.

“To bring such undeclared income under track of taxation authorities, Section 194R, introduced through Finance Bill 2022, and coming into existence with effect from 01st July 2022”

Provisions

Rate of TDS – 10% on benefits or perquisites arising out of Business or Profession.

To Whom Applicable

Includes: Any Person for paying any benefit or perquisite to a resident dealer/customer.

Excludes: Individuals or HUF whose turnover does not exceeds 1 Crore (Business) or 50 Lacs (Profession) in preceding FY

What is Benefits/ Perquisites

Benefits or perquisites subjected U/s 194R are totally different as subjected U/s 17 of the Act. For benefits or perquisites mentioned U/s 17 there is a separate section i.e. 192 of the Act, to make it taxable in the hand of employee.

Benefits or perquisites provided U/s 194R should be arising on account of business or profession.

Benefits may or may not be convertible into money but it should arise from business or profession.

Threshold Limit

No deduction will be made U/s 194R, if the value of benefit provided or likely to be provided to the resident during the financial year does not exceed 20000 rupees.

Rate of TDS

Responsible Person, is required to deduct 10% of the value or aggregate of value of benefits or perquisites before providing such benefits or perquisites

Applicability

Calculation of the value or aggregate value of benefits or perquisites triggering deduction shall be counted from 01st April 2022.

While TDS U/s 194R will be deducted only on the benefits or perquisites provided on or after 01st July 2022

Case Study

Here are some examples through case study

M/s ABC Ltd/LLP/Firm/AOP/BOI/Trust/Society or Mr A (Individual/HUF) having turnover above Rupees 1 Crore (Business) or Rupees 50 Lacs (Profession) in PY 2021-22

Frequently Asked Questions (FAQs)

To clear practical doubts on Section 194R

10 FAQs answered by CBDT

For removal of difficulties under sub section (2) of Section 194R of the Income Tax Act 1961. Guidelines issued by CBDT through Circular No 12 of 2022 on 16.06.2022,

Q1. Is it Mandatory to Check Taxability in Hands of Receiver of benefits/ Perquisites?

Ans. NO, The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of recipient.

Obligation U/s 194R – Section 194R of the Act, cast an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10%. 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.

Q2. Is it necessary that benefits/ perquisites must be in kind?

Ans. May be in Cash, in Kind, Partly in cash or Partly in Kind – First provision to sub-section (1) of Sec 194R of the Act, clearly brings in its scope the situation where the benefit or perquisite is in Cash or in Kind or Partly in cash or Partly in kind.

Q3. Is 194R applicable if benefits/ perquisites is a Capital Assets?

Ans. Yes, 194R will be applicable – In any case, as stated earlier, the deductor is not required to check if the benefit or perquisite is taxable in the hand of recipient, Thus, the deductor is required to deduct tax U/s 194R in all case where benefit or perquisite (of whatever nature) is provided.

Q4. Whether Sale discount, Cash discount and rebates are benefits or perquisites

Ans. It is clarified that no tax is required to be deducted on sale discount, cash discount and rebates allowed to customers – It is because sales discount, cash discount, or rebate allowed to customers from the listed retail price represents lesser realization of the sale price itself. To that extent purchase price of customer is also reduced.

Relaxation will not be applied on Free Samples – Free samples provided to resident dealer will be subjected with TDS U/s 194R, similarly, the above relaxation should not be extended to other benefits provided by the seller in connection with its sale. Some examples are

1. Incentives in form of cash or kind such as Car, TV, Computer, Gold Coin, Mobile Phone etc.

2. Sponsor a trip for the recipient and his/her relatives upon achieving certain business targets.

3. Provides Free tickets for an event

4. Provides medicine samples free to medical practitioners

What if benefits used by owner/director/employee of the recipient entity or their relatives who are not doing any business or profession.

As the benefit/ perquisite are provided to the recipient entity, so tax is required to be deducted by the person in the name of recipient entity only- Because the usage by owner/director/employee/relatives is by virtue of their relation with the recipient entity only

Example: Free Medicine Samples may be provided by a company to a Doctor

Case 1. Who is an Employee of a Hospital

TDS by the company will be deducted in the name of hospital, as the benefit provided to the doctor being the employee of the hospital. The hospital may later on treat this as the perquisite given to its employee U/s 17 and deduct tax U/s 192. It would be first taxable in the hand of hospital, then allowed as deduction as salary expenditure, ultimately the amount would get taxed in the hand of employee

Case 2. Who is consultant in Hospital

Both option is available, can deduct tax in the name of hospital first, then hospital can deduct tax in the name of doctor as benefit provided to him. The person can directly deduct tax in the name of doctor

Q5. How valuation of benefits required to be carried out

Ans. Valuation will be based on FMV except in following cases.

1. Benefits provided after purchasing from somewhere else, then purchase value will be value of benefits

2. Product itself manufactured by the person, then the value charged by the customers for such item, will be the value of benefits.

GST will not be included for the purpose of valuation for Sec 194

Q6. Manufacturing Company provides its product to social media influencer for making product video, will it be benefit or perquisite?

Ans. If the product is returned to the manufacturing company after rendering services, then it will not be treated as benefit or perquisite, but if the product retained then it will be in the nature of benefit or perquisite and tax is required to be deducted accordingly under section 194R of the Act.

Q7. Reimbursement of out of pocket expenses incurred by service provider in the course of rendering services is benefit/perquisite?

Example: Consultant Mr. A is rendering services to Mr. B against consultancy fees. In the course of services, he has to travel to Mumbai. At Mumbai he stays in a hotel and incurred expenditure on boarding and lodging, now there can be three cases for meeting the expenses incurred by Mr. A

Q8. Dealer conference to educate the dealers about the products of the company – Is it benefit/ perquisite?

Ans. It would not be considered as a benefit, when it is held with prime object to educate dealer/customer about any of the similar aspect:

1. New product launched
2. Discussion as to how the product is better than others
3. Obtaining orders from dealers/customers
4. Addressing queries of the dealers/customers
5. Reconciliation of accounts with dealers/customers

However, it must not be in the nature of incentive/benefit to select customers who have achieved particular targets

In below cases, the expenditure would be consider as benefit for the purpose of section 194R:

1. Expenses on Leisure trip or component, even if it is incidental to the dealer/business conference.

2. Expenditure incurred for family members accompanying the person attending dealer/business conference.

3. Expenditure on participants for days which are on account of prior stay or overstay beyond the dates of such conference.

Q9. If benefit provided by person is in the nature of kind, what would be the process for deducting or depositing the TDS?

Case1: Required TDS would be deposited by The Recipient

Requirement – If a person is providing benefit in kind to a recipient and tax is required to be deducted U/s 194R, the person is required to ensure before releasing benefits that TDS has been paid by the recipient

How to ensure – Recipient would pay tax in the form of advance tax, and provide copy of challan along with a declaration to the person providing benefits.

Reporting by The Person providing benefits in its TDS Return- This would be required to be reported in TDS return along with challan number

Amendment in 26Q- This year Form 26Q has included provisions for reporting such transactions

Q.10 How to compute threshold limit of Rupees 20000

Ans

For Calculation of Threshold of Rupees 20000 – Since, the threshold of Rupees 20000 is with respect to the FY, calculation of value or aggregate of the value of the benefits triggering deduction U/s 194R shall be counted from 01st April 2022

Deduction of TDS only on the benefits provided after 01st July 2022- The benefits which has been provided on or before 30th June 2022, would not be subjected to tax deduction U/s 194R of the Act.

So Friends, this is all about the newly inserted section 194R, hope you understand the intent of legislature and practical application of the section

THANK YOU