Section 194R: TDS on Benefit or Prequisite of a Business or Profession

Last Updated On: Feb. 13, 2022, 1:57 p.m.
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SECTION 194R: TDS ON BENEFIT OR PREQUISITE OF A BUSINESS OR PROFESSION

During the Finance Bill 2022, Government has inserted a new section in the Income Tax Act,1961. This section 194R is applicable w.e.f 01st July 2022 with an objective of bringing into a tax, all those benefits or prequisites which a person receives during the course of business or Profession but do not discloses the same in the return of income, leading to furnishing of incorrect particulars of income.

 

What does the section 194R state?

Section 194R states that when any “person responsible for providing” to a resident, any perquisite or benefit (whether in cash or in kind) arising in the course of carrying out of a business or profession by such resident, such person (payer) should before remitting the same to such resident (receiver) deduct a tax @ 10% of the value or aggregate value of such benefit or perquisite.

However, TDS shall not be applicable if the value or aggregate value of the benefit or perquisite does not exceeds Rs. 20,000/- during the Financial Year.

This section shall not be applicable to an “Individual” or a “HUF” whose total sales or gross receipts from the business or profession does not exceeds Rs. 1 crores in case of business or Rs. 50 lacs in case of profession.

This section also states that, where the benefit or perquisite paid is wholly in kind or partly in cash or partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person (payer) before releasing the benefit or perquisite, must ensure that the tax has been paid in respect of that benefit or perquisite.

This section also contains one explanation on “Person responsible for providing” – It states that a “person responsible for providing” means the person providing such benefit or perquisite, or in the case of a company, the company itself including the principal officer thereof.

 

What are the Provisions under the section 194R?

Clause (iv) of section 28 of the Act Section 28(iv) of the Act provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite.

 

Section 194R- Deduction of tax on benefit or perquisite in respect of business or profession:

Proposed section 194R states “Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:

Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax has been paid in respect of the benefit or perquisite:

Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees

Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.

 

A detailed Analysis of Section 194R:

Section 194R in its present form would be a big compliance challenge for businesses as there are multiple types of perquisites & benefits which are extended to their dealers/ distributors/agents/ channel partners etc with the objective of incentivizing and motivating them for the growth of business. Some examples of common perquisites/ benefits are:

Travel packages Gift Cards/vouchers Products under incentive scheme – Gold Coins/ Vehicles/ phones etc Usage of business assets etc Considering the express language of Section 194R and specific linking of proposed section with clause (iv) of Section 28 in the memorandum, we can deduce following: 1. That transactions through issuance of credit notes would not be covered in the ambit of section 194R due to following reasons:

 

‘whether convertible into money or not‘ would mean that benefit, which is provided will be liable for TDS, irrespective of whether the benefit is capable of conversion into money form or not. First proviso to section 194R also provides for cases where benefit is wholly in kind, benefit is partly in kind and partly in cash and in no case talks about benefit wholly in money.

Hon’ble Supreme Court was of the view that for section 28(iv) of the Act to be applicable, income must arise from business or profession and the benefit, which is received, has to be in some other form rather than in the shape of money. [2018] 93 taxmann.com 32 (SC) It needs to be appreciated that transactions in money are in any case recorded in the books of accounts and suitable impact is given in ledger of other party.

However, what is intended to be covered are those transactions which though are resulting into benefit to another person, however, still remains unaccounted.

 

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