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Section-194R-TDS-on-benefits-or-perquisite-provided

 

Section 194R–TDS on benefits or perquisite provided

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Introduction-
Section 194R shall apply to sellers giving incentives, other than discounts or rebates, which are in cash or kind e.g., car, TV, sponsored trips, free tickets, medicine samples to medical practitioners.
Section 194R shall apply because the benefit in the course of business/ profession.
 
Applicability-

Budget 2022-23 introduced a new section in the Income Tax Act - 194R, which has been made applicable w.e.f. 1.7.2022. The benefit or perquisite referred to in this new section 194R is not the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, as for that perquisite u/s 17(2), another TDS section 192 is already there.

   
Rate of TDS-
The rate of tax at source is 10%.
 
Conditions-
  1. 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 the recipient, and the section under which it is taxable.
  2. Section 194R covers the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.
  3. Capital assets like car, land etc. given as benefit or perquisite would be covered within the ambit of deduction of TDS u/s 194R
  4. No TDS is required to be deducted under said provisions on sales discount, cash discount and rebates allowed to customers. the above relaxation would not apply to a situation of free samples and similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale.
  5. TDS under Section 194R is required to be deducted in the name of the recipient entity even though the benefits/perquisites may be used by owner/director/employee of the recipient entity. It is further clarified that these benefits/perquisites may be used by owner/director/employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession. However, the tax is required to be deducted by the person in the name of recipient entity since the usage by owner/director/employee/relative is by virtue of their relation with the recipient entity and in substance the benefit/perquisite has been provided by the person to the recipient entity.
  6. The provision of section 194R of the Act shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.
  7. Valuation would be based on fair market value of the benefit or perquisite, except –
    • The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. in that case the purchase price shall be the value for such benefit/perquisite.
    • The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.
    It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.
  8. TDS is to be deducted if the product given to social media influencer for use and thereafter making audio/video, etc., is retained by the influencer, or if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 194R of the Act
  9. Reimbursement of out-of-pocket expense is perquisite/benefit-
    -Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite provided by the second person to the first person in the course of business/profession. Except, where the invoice is raised in the name of service recipient.
  10. Expenditure pertaining to dealer/business conference is not to be considered as benefit/perquisite for the purposes of section 194R of the Act, in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
  • new product being launched
  • discussion as to how the product is better than others
  • obtaining orders from dealers/customers
  • teaching sales techniques to dealers/customers
  • addressing queries of the dealers/customers
  • reconciliation of accounts with dealers/customers
However, such conference must not be in the nature of incentives/benefits to select dealers/customers.
   
Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of TDS under section I 94R of the Act: -
  • Expense attributable to leisure trip or leisure 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 of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
The benefit or perquisite which has been provided on or before 30 June 2022, would not be subjected to tax deduction under section 194R of the Act.




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