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.

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.

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

• Incentives in form of cash or kind such as Car, TV, Computer, Gold Coin, Mobile Phone etc.
• Sponsor a trip for the recipient and his/her relatives upon achieving certain business targets.
• Provides Free tickets for an event
• 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

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

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

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

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.

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

The Expenditure incurred by Mr. A is part of his business expenditure	Mr. A paid all expenditure himself and get reimbursement from Mr. B or Mr. B directly paid all expenditures (Invoices are not in the name of Mr. B)	Mr. A paid all expenditure himself and get reimbursement from Mr. B or Mr. B directly paid all expenditures (Invoices are in the name of Mr. B)
In this case the fees received by Mr. A is his income and expenditure incurred on travel is his expenditure deductible from such income in computing his total income	It is the benefit provided by Mr. B to Mr. A for which deduction is required to be made under section 194R of the Act	Since the expenses paid by Mr. A is incurred wholly and exclusively for the purpose of rendering service to Mr. B, then the reimbursement made by Mr. B being the service recipient will not be considered as benefit
194R would not be applicable	194R would be applicable	194R would not be applicable

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:

• New product launched
• Discussion as to how the product is better than others
• Obtaining orders from dealers/customers
• Addressing queries of the dealers/customers
• 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:

• Expenses on Leisure trip or component, even if it is incidental to the dealer/business conference.
• Expenditure incurred for family members accompanying the person attending dealer/business conference.
• Expenditure on participants for days which are on account of prior stay or overstay beyond the dates of such conference.

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

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