SECTION 194R: TDS ON BENEFITS OR PERQUISITE
The government has recently introduced the section 194R. In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable w.e.f. 1.7.2022.
What is the eligibility criteria for Tax Deductor?
Any person (Resident or Non Resident) 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 u/s 194R.
The responsibility for tax deduction also does not apply to a person, being individual/Hindu undivided family (HUF) deductor, whose total sales/ gross receipts/ gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provide by him
Who is liable to deduct tax under Section 194R?
Any person responsible for providing any benefit or perquisite, whether convertible into money or not, is required to ensure that the tax required to be deducted has been deducted in respect of such benefit or perquisite under Section 194R. The deductor can be a resident or a non-resident person.
It is to be noted that this provision is applicable with effect from 01-07-2022. Thus, the benefit or perquisite which has been provided on or before 30-06-2022, would not be subjected to tax deduction under this provision.
However, this provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of the 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.
Who is a deductee for Section 194R?
Tax is required to be deducted under this provision if the benefit or perquisite is provided to a resident person and it is arising from business or the exercise of a profession by such resident.
However, in the following situations, the tax shall not be deducted under this provision:
- If an employer-employee relationship exists, the tax shall be deducted under Section 192
- If the recipient is a non-resident, the tax shall be deducted under Section 195;
- If the benefits or perquisites do not have a connection with the business or profession of the resident recipient/deductee;
- If benefits or perquisites are provided to a customer who does not engage in business or exercise of a profession.
Conditions applicable for tax deduction :-
- Only resident Payees are covered u/s 194R
- The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident.
- The perquisites can either be in cash, in-kind, or partly in both of these forms.
- The taxpayer does need to check the taxability of the sum in the hands of the recipient, and the nature of the asset given as benefit or prerequisite is not relevant
- For F.Y. 2022-23, the Value of Benefit or Perquisite given in the Period from 1.4.2022 to 30.6.2022, will be counted and considered for determining the threshold limit of Rs. 20,000 in a year, but TDS u/s 194R will not be deducted on such Benefits or Perquisites. TDS u/s 194R will be deducted only on those Benefits or Perquisites which are provided or given on or after 1.7.2022.
- Deductor is under no obligation to check to whether the benefit provided is taxable as business income for the recipient or not. Amount of Deduction Any person (Resident or Non resident), who is responsible for providing any benefit or prerequisite to a resident, to deduct tax at source (TDS) at a rate of 10% of the value or aggregate of the value of such benefit or perquisite provided or likely to be provided to the resident during the financial year exceed Rs. 20,000 in a year, per recipient.
- TDS u/s 194R is to be deducted on fair market value of the benefit or perquisite, however if deductor has purchased the benefit/perquisite before providing it to the recipient. In that case, the purchase price (Actual cost) shall be the value for such benefit/perquisite.
- Further, if the deductor manufactures such item then the price that it charges to its customers for such item shall be the value for such benefit / perquisite.
- GST is to be excluded from the Purchase Value or Fair Market Value of such Benefit or Perquisite, for the Purpose of TDS Deduction.
When the provisions of Section 194R shall not apply?
No tax shall be deducted under this provision in the following circumstances.
- No TDS if the value of benefit or perquisite is below Rs. 20,000
No tax shall be deducted under this provision if the value or aggregate of the value of the benefit or perquisite provided or likely to be provided during the financial year does not exceed Rs. 20,000. - No TDS if provider is a specified individual or HUF
This provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakh in case of the 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 Individual or HUF.
Computation of value of Benefit or Perquisite for TDS under section 194R
The CBDT has clarified that the valuation would be based on fair market value of the benefit or perquisite except in following cases:-
- 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.
