In order to increase the taxbase & to bring a larger number of assessee’s under the tax net, the government has inserted a new section 194R in the Income-tax Act, 1961 (‘Act’) through the Finance Act, 2022, effective July 1, 2022.
Section 194R mandates a person to withhold tax at source (‘TDS’) at 10% on providing any benefit or perquisite, whetherin cash or kind , to a resident arising during the course of business and profession.
The liability to deduct TDS arises when the aggregate value of benefit/perquisite provided/ likely to be provided during the financial year (‘FY’) exceeds INR 20,000/-.
However, the provisions of this section does not apply to an individual/ Hindu Undivided Family (‘HUF’) whose total sales/receipts/turnover from the business does not exceed INR 1 crore or from profession does not exceed INR 50 lacs in the immediately preceding FY or If the aggregate value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed Rs. 20,000/-
The Central Board of Direct Taxes (‘CBDT’) vide circular dated June 16, 2022 has issued certain guidelines in this regard :
i. The Deductor is not required to check the taxability of perquisites or benefits in hand of the recipient.
ii. The benefit/perquisite can be in the form of cash or kind;
iii. Any sales discount, cash discount, or rebate on the sale of any product, shall not form part of the perquisite or benefit & consequently, section 194R would not apply in that case.
iv. The FMV of perquisites or benefits in kind shall be used to value them. However,
a. If such perquisite/benefit is purchased by the deductor, the purchase price shall be the value of such benefit/perquisite
b. If the deductor is manufacturer of such benefit/perquisite, the price charged to it’s customers shall be the value of such benefit/perquisite.
Goods & Service Tax (‘GST’) will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.
v. If a sample copy of a product is given to social media influencers for the purpose of shooting and that product is duly returned to the Deductor after giving his services, then there would be no TDS liability. Whereas, after services, if products are kept with influencers, then TDS under section 194R would be deducted.
vi. Reimbursement of out-of-pocket expenses to a service provider would be considered a perquisite/r benefit. and TDS under section 194R would be required to be withheld. However, if invoices for such expenses are in the name of the deductor itself, then TDS is not required to be deducted.
vii. If perquisites or benefits are in kind, the deductor shall take a declaration and a copy of the corresponding advance tax challan from the recipient. The Deductor must report the challan number while filing his TDS return.
viii. The limit of INR 20,000 has to be calculated from April 1, 2022, and the liability to withhold the tax would arise only on the transactions that accrued after July 1, 2022.
Value of benefit/ perquisite up to 01.04.2022
Value of benefit/ perquisite from 01.07.2022
Total value for FY 2022-23
Value on which TDS charged @10%
No tax on benefits provided prior to 01.07.2022.
Name on Invoice
Expenditure paid By
Reimbursed by Company
Section 194R is Applicable
Section 194R is Applicable
Section 194R is not Applicable*
* It is important to note that the expenditure that are re-imbursed are incurred wholly and exclusively to provide assurance services by Mr. T.