New Guidelines under Section 194R are aimed at providing greater clarity and simplification of the provisions of Section 194R, which deals with the taxability of payments made by companies to banks and NBFCs.
GUIDELINES UNDER SECTION 194R OF THE INCOME TAX ACT 1961
Section 194R was introduced by Finance Act w.e.f 1st July 2022
What is Section 194R?
During the Budget 2022-23, the government specified the new TDS section 194R in the Income Tax Act. The amended section specifies that a 10% TDS shall be deducted by any individual who issues advantages and prequisite of more than Rs.20,000 a year to a resident.
Advantages and Prerequisite:
Advantages such as foreign tickets for the business or profession and free samples obtained by the doctors are the income specified. This income must be shown in the Income Tax Return (ITR), and the taxability of these advantages shall not be relayed on the concern that they are not being sold.
Summary of Section 194R:
1. Applicability: 1st July 2022
2.TDS to be deducted by: Business or Profession
3. To be deducted on: Any Prerequisite or benefit to resident.
4. Type of Prerequisite/Advantage: In cash or In-kind or partially in cash or partially in kind.
5. TDS rate: 10%
6. Not applicable for individuals: a. If the business turnover is more than Rs. 1 crore.
b. If the turnover of the profession would not be more than Rs.50 Lakh
7.No TDS: If the aggregate value would not be more than Rs. 25,000 in a financial year.
CBDT issues a circular 18 of 2022 dated 13th Sep 2022: Additional Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income Tax, 1961.
1. No TDS u/s 194R on One Time Loan settlement with Borrowers or Waiver of Loan by:
a. Public Financial Institution,
b. Scheduled Bank,
c. Co-operative Bank,
d. Primary Cooperative Agricultural and Rural Development Bank,
e. State Financial Corporation,
f. State Industrial Investment Corporation,
g. Deposit-taking NBFC,
h. Systemically Important (SI) Non-deposit taking NBFC,
i. Housing Finance Company providing long-term finance for the construction or purchase of residential houses in India,
j. Asset Reconstruction Companies.
2. No TDS u/s. 194R on Expense incurred by Pure Agent and reimbursed by recipient (would not be treated as Benefit or Perquisite), if;
a. Supplier acts as Pure Agent on behalf of recipient and makes payment to third party on authorisation of the recipient
b. Payment made by Pure Agent on behalf of the recipient to a third party is separately indicated in the invoice issued by the Pure Agent to the recipient
c. Supplies procured by Pure Agent from the third party are in addition to its own supplies d. GST input credit is claimed by the recipient
3. No TDS u/s 194R on Out-of-pocket expenses included in the bill and Tax deducted u/s. 194J on the entire amount of the bill including the Out-of-pocket expenses.
4. No TDS u/s. 194R on Benefit or Perquisite provided in a group activity if;
a. It is difficult to match the benefit or perquisite with each participant separately,
b. Such expense is not claimed as deductible expenditure from total income under Income Tax, by the person incurring such expense.
5. Depreciation on the Car received as a gift is available to the recipient, if;
a. TDS u/s. 194 R is deducted by the person giving the gift
b. Benefit value is included in the total income offered to tax by the recipient.
6. Section 194R is not applicable on benefit or perquisite provided by;
a. Organisation in the scope of The United Nations (Privileges and Immunity Act) 1947
b. International Organisation with income exempted as per specific act of parliament. c. An Embassy, High Commission, Legation, Commission, Consulate and Trade representation