It was observed by department that many companies claimed expenses for business promotions by offering various gifts/ perks/ benefits to its dealers (on fulfillments of conditions of under agreement or as per prevalent norms/ tradition practice followed by over the years by business entity) under section 37 of Income Tax Act 1961, however majority of dealer did not declared the said gifts/ perks/ benefits under business income as required by sec 28 (iv) of Income Tax Act 1961. So to bring such gifts/ perks/ benefits received due to business connections by resident dealers TDS U/s 194R is introduced to track the undeclared income.
Bare Section –Deduction of tax on benefit or perquisite in respect of business or profession.
“194R. (1) 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 required to be deducted 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.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation.—For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.”
Frequently Asked Questions (FAQs)
Will Section 194R be applicable in case of gifts, benefits, or perks received during special occasions such as festivals or a marriage ceremony?
No, Section 194R will be applicable only in the case of those benefits or perquisites that arise out of business or profession.
What is a TDS certificate?
TDS certificates include Form 16, Form 16A, Form 16B, and Form 16C. A person deducting TDS has to issue these certificates to the assessee from whose income tax was deducted while making a payment.
If the benefit given is non-monetary, how to calculate its price for tax deduction?
The price of a non-monetary benefit or perquisite should be calculated based on the fair market value of such products.
Will discounts, cash discounts and rebates be considered benefits or perquisites under Section 194R?
No, discounts and rebates will be reduced from the sale price. Thus, they are not treated as benefits or perquisites.
Is Section 194R applicable to employees?
No, Section 194R does not apply to benefits and perquisites given to employees since TDS on the same will be deducted under Section 192 of the Income Tax Act.
Non-applicability of TDS under Section 194R
- Section 194R does not apply to employees who receive benefits from their employers. Section 192 will apply to them.
- When the recipient is a non-resident, the tax will be deducted under Section 195.
- When there is no business relationship, this section will not apply.
Analysis
APPLICABILITY:
To all assesse (other than Individual & HUF)
And
Individual & HUF having Turnover is above Rs. 1,00,00,000 or Professional receipt is above Rs 50,00,000 in previous year 2021-22 assessment year 2022-23
This new section 194R requires deduction of tax at source @ 10%, by any person, providing any benefit or perquisite, exceeding Rs. 20,000 in value, in a year, to a resident, arising from the business or profession of such resident and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income tax Act.
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.
The benefits or perquisites proposed to be covered by this new section 194R are those perks, benefits, amenities, or facilities, probably in kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in exercise of such business or profession. Such benefits or perquisites are taxable as business receipts u/s 28(iv) of the Income Tax Act.
Sec 28 : The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—
(iv): the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.
Also, such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession
Special Points:
1. Applicable from 01/07/2022. (Refer Case 1 & 2)
2. Such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession.(Refer Case 3 & 5)
3. For calculating Aggregate limit of Rs. 20,000 financial year is to be considered as a whole and not period after 01/07/2022.(Refer Case 4)
4. Such gifts, perks or benefits provided are not in relation to business of resident person. (Eg. honorarium given to resident as guest of honor for function or event) (Refer Case 6)
Case 1: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust)
Amount of gift/ perks/ benefits provided to dealer Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 50,000 + GST on 31/05/2022 on achieving target for FY 2021-22.
Sec 194R Applicability Not Applicable
Reason As gift/ perks/ benefits ie. Holiday Package is provided before 01/07/2022. So provisions of Sec 194 R is not applicable in given case.
Case 2: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI/Trust)
Amount of gift/ perks/ benefits provided to dealer Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 50,000 + GST on 31/07/2022 on achieving target for FY 2021-22.
Sec 194R Applicability Applicable
Reason As gift/ perks/ benefits ie. Holiday Package is provided after 01/07/2022. So provisions of Sec 194 R is applicable in given case.
TDS on Amount Rs. 50000
TDS U/S 194R
Date of Deduction 31/07/2022
TDS RATE 10%
TDS Amount Rs. 5000 (Challan to be deposited by 07/08/2022)
Case 3: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident Employee (Individual)
Amount of gift/ perks/ benefits provided to dealer Mr. Y (Resident Employee) was provided with holiday package amounting to Rs. 50,000 + GST on 31/07/2022 on achieving target for FY 2021-22.
Sec 194R Applicability Not Applicable
Reason As gift/ perks/ benefits i.e. Holiday Package is provided to Resident employee will be added in salary and TDS will be
deducted U/s 192 So provisions of Sec 194R is Not applicable in given case.
TDS on Amount Rs. 50000 will be treated as salary U/s 17 of Income Tax Act 1961.
TDS U/S 192
Date of Deduction On 07th of every month
TDS RATE Average Rate as per Tax
TDS Amount As per Slab rate
Case 4: M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above
Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Co-operative Society/AOP/BOI)
Amount of gift/ perks/ benefits provided to dealer Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 10,000 + GST on 31/05/2022 on achieving target for FY 2021-22 and Gold Coin Worth Rs. 15000 on 31/07/2022
Sec 194R Applicability Applicable
Reason As gift/ perks/ benefits ie. Holiday Package & Gold Coin is provided after 01/07/2022 exceeds Aggregate Limit of Rs. 20000. (Rs. 25000 i.e. Rs.10000 before 01/07/2022 and 15000 after 01/07/2022)
So provisions of Sec 194R is applicable in given case.
TDS on Amount Rs. 25,000
TDS U/S 194R
Date of Deduction 31/07/2022
TDS RATE 10%
TDS Amount Rs. 2,500 (Challan to be deposited by 07/08/2022)
Case 5: : M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident person (Individual/ HUF/ Partnership/ LLP/ Company/Co-operative Society/AOP/BOI)
Amount of gift/perks/ benefits provided to dealer Mr. Y (Resident Dealer) was provided with holiday package amounting to Rs. 10,000 + GST on 31/05/2022 on achieving target for FY 2021-22 and Gold Coin Worth Rs. 15000 on 31/07/2022 on his sons marriage.
Sec 194R Applicability Not Applicable
Reason As gift/ perks/ benefits ie. Holiday Package is provided after 01/07/2022 does not exceeds Aggregate Limit of Rs. 20000. (Rs. 15000 is given to son of Mr. Y at time of Marriage which is not in relation to Business as U/s 28(iv), hence same shall not be included for calculation of aggregate value.) So provisions of Sec 194R is not applicable in given case.
TDS on Amount NA
TDS U/S NA
Date of Deduction NA
TDS RATE NA
TDS Amount NA
Case 6: : M/s ABC limited/ ABC LLP / ABC (Partnership Firm)/ ABC(AOP/BOI)/ ABC(Tust)/ ABC (Cooperative society) Or Or Mr. ABC (Individual/HUF) having Turnover above Rs.1,00,00,000 or professional Reciepts above Rs. 50,00,000 in PY 2021-22 AY 2022-23:
Matter Provides Gold coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers as per the norms/business traditions/ agreement with dealers
Given to Resident person (Individual/ HUF/ Partnership/ LLP/ Company/ Cooperative Society/AOP/BOI)
Amount of gift/ perks/ benefits provided to dealer M/s XYZ Limited (Resident Dealer) was provided with Gold Coin Worth Rs. 15000 on 31/07/2022 on achieving target for FY 2021-22 and Impress with Mr Y (employee of M/s XYZ) performance it provided Silver Coins amounting to Rs. 10,000 + GST to Mr Y on 31/07/2022 as gift.
Sec 194R Applicability Not Applicable
Reason As gift/ perks/ benefits ie. Coins is provided after 01/07/2022 does not exceeds Aggregate Limit of Rs. 20,000. (Rs.10,000 Silver Coins is given to Mr. Y is not in relation to Business as U/s 28(iv) as he is not the authorized dealer but employee of M/s XYZ Limited, moreover Silver Coins provided to Mr. Y in his personal capacity and not capacity as employee of M/s XYZ Limited. Hence same shall not be included for calculation of aggregate value.) So provisions of Sec 194R is not applicable in given case.
TDS on Amount NA
TDS U/S NA
Date of Deduction NA
TDS RATE NA
TDS Amount NA
The Central Board of Direct Taxes (CBDT) has issued guidelines to remove the difficulties in implementing the provisions of section 194R. The board has framed 10 questions and answered them to give clarity on the deduction of tax at source. The guidelines are binding on income-tax authorities and the person providing benefit or perquisite. Refer details below